The IPO of private equity powerhouse Blackstone Group was set at $31 a share Thursday night, amid what was described as avid interest in the initial public offering.
Blackstone Group's shares are expected to begin trading under the ticker "BX" on Friday. The 17 investment banks running the deal, led by Morgan Stanley, had been working with an offer price range of $29 to $31 per share.
CNBC’s Bob Pisani reported that “The deal size they announced was the deal they made: 133.333 million shares.”
He explained that the deal contains a greenshoe, or an option to sell more shares than originally planned. “Traditionally, that’s 15% over allotment, which the underwriters can use -- and given the oversubscription to this [IPO], I anticipate that will happen.”
“Eventually, this deal will probably go to 153 million shares,” Pisani predicted. He added that the offering is “a great deal for Morgan Stanley and the underwriters.”
"It's hitting the IPO market with a running start in a very favorable environment," said Jack A. Ablin, chief investment officer at Harris Private Bank.
The offering price of $31 a share would raise more than $4 billion and value the firm at more than $30 billion -- bigger than Bear Stearns, Amazon, Nike or Sears.
Oleg Litvinenko, a research associate at Cabot Money Management, had predicted Blackstone would fetch top dollar. Private equity markets are strong, Litvinenko said, with Blackstone Group earning almost $2.3 billion last year. Plus, a lot of different kinds of investors want to put their money behind private equity, he said.
"Highly Profitable Business"
"This is a highly profitable business that's been successful," he said. "What will matter is how well publicly traded private equity firms will be able to take advantage of the high-growth industry trends and sustain the same profitability."
Other big private equity firms will be watching how successful Blackstone's IPO is because the firm is just the second such fund to sell a stake in itself to the public.
Fortress Investment Group, a group of investment funds including private equity, went public in February at $18.50 a share and spiked by two-thirds in its first day of trading. The shares have since eased to $25.87, up about 40% since the IPO priced.
Litvinenko said Fortress Investment Group represents the best comparison to Blackstone Group, and investors will probably value the New York-based partnership with Fortress in mind.
The heavy interest in Blackstone's IPO comes as lawmakers in Washington D.C. take aim at its tax structure. A co-author of a U.S. Senate bill that would raise taxes on private equity
firms going public said Wednesday he was open to shortening a transition period that cushions any potential tax hit on Blackstone Group.
Raising Taxes
The Baucus-Grassley bill would require publicly traded partnerships deriving income from investment adviser and asset management services to pay the federal corporation tax rate of
up to 35% instead of the 15% rate their partners now pay.
Blackstone would be affected by the proposed tax code change, if it becomes law, but not for five years under the transition period written into the bill.
The comments from the Montana Democrat, who chairs the Senate Finance Committee, came as a handful of lawmakers voiced wide-ranging concerns about his bill and the Blackstone IPO.
Sen. Richard Shelby, R-Ala., and the ranking Republican on the Senate Banking Committee, told CNBC he opposed efforts to increase taxes on Blackstone Group.
In an exclusive interview, Shelby said companies like Blackstone are the “enemies of inefficiency and waste” and “have saved a lot of companies that weren’t well-managed.”
“We have a great economy, but if we tax it to death, we will be in trouble,” Shelby added. “The Democrats always, it seems to me, are looking, to raise taxes rather than to promote efficiency in the economy and give people tax breaks. I believe we ought to look at the tax code, not for money, but to promote the economy.”
Waxman Seeks Delay
Rep. Henry Waxman, D-Calif., asked the SEC to delay the Blackstone IPO pending Congressional hearings after the July 4 recess. CNBC’s John Harwood said he expected the Bush administration to allow the IPO to proceed.
SEC Spokesman John Nester said, "Congress has created the world’s strongest investor protection laws, which the Commission has rigorously applied." Nester also noted that the effectiveness of a registration statement may be refused only if the statement contains "material misstatements or omissions."
The size of the deal has been matched only by the controversy surrounding the offering.
Blackstone first defied expectations when it said in March it would go public, having made its fortune taking companies private. It also raised eyebrows by structuring the company to hand little control to investors -- instead tying their stakes to the management committee that runs the firm.
While Blackstone would get a five-year exemption (since it filed to go public before the bill was introduced), the potential for a tax hike so far hasn't discouraged others from following suit. According to CNBC's Charlie Gasparino, Kohlberg Kravis Roberts has hired Morgan Stanley and Citigroup for a possible IPO later this year.
The pending legislation may have played a role in Blackstone rushing its IPO to market this week, but analysts also say there was probably no good reason to wait.
Renaissance Capital's Stiller said the firm may have simply had sufficient demand to accelerate the timetable for the IPO, which was initially planned for next week.
No Point in Waiting
"If you have enough orders there's no point in waiting," he said.
Francis Gaskins, president of research company IPOdesktop.com, said the accelerated timetable also may have been designed to ensure there are no distractions.
Blackstone has shifted its IPO into a particularly slow week. According to Gaskins, only three other companies are set to go public this week, compared with six next week.
"This is the time to have the spotlight," Gaskins said.
Meanwhile, the leaders of the Senate Banking Committee asked the Treasury Department and the Securities and Exchange Commission for analysis of the legislation that would raise taxes on private equity funds going public.
Sens. Christopher Dodd and Richard Shelby, the Democratic chairman and senior Republican on the panel, respectively, asked about the bill's "likely impact on the nation's capital markets, including the potential effects on investor protection, capital formation and other relevant issues."