Copyright © 2007 YellowBrix, Inc

Print this page

Blackstone Sets Off IPO Gold Rush Archrival KKR May Follow Suit

International Herald Tribune

By Michael J. de la Merced and Andrew Ross Sorkin

Now that Blackstone Group is off and running, it needs to start looking over its shoulder. Just as the private equity group has overcome a maelstrom of opposition to go public Friday,

its archrival, Kohlberg Kravis Roberts, was planning an initial offering of its own, people briefed on the matter said Thursday.

On Thursday night, Blackstone priced its eagerly awaited initial public offering at $31 a unit, at the top of its range, raising $4.13 billion.

Blackstone, with the help of an army of underwriters, 17 in all, sold 133.3 million common units, or a 12.3 percent stake, in one of the largest offerings in the United States in nearly

five years.

On Friday, shares soared almost 20 percent in their debut on the New York Stock Exchange before slipping back to close at $35.16, up 13 percent. The firm has already sold a $3

billion nonvoting stake to a Chinese state-owned investment company.

Blackstone opened a private equity office in Hong Kong earlier this year to expand its investment activities in the Asia-Pacific region.

Scott Sweet, managing director of IPO Boutique, said the Blackstone offering was heavily oversubscribed, with investors not only in the United States but also in Asia, Europe and the

Middle East clamoring for a piece of the action.

That augured well for trading of the stock Friday, Sweet said.

"I expect a strong opening and an orderly opening," he said, adding that buyers would probably receive far smaller allotments of the stock than they had requested.

Over the last week, a number of lawmakers have proposed tax legislation that could trim hundreds of millions of dollars from the profit of private equity and offered broadsides aimed

at turning aside Blackstone's offering while trying to discourage others from following.

But Blackstone has persevered, and it now seems that Kohlberg Kravis is determined to match its rival's achievement. The firm has retained investment banks including Morgan

Stanley and could file a prospectus within the next month, people familiar with the matter said.

They cautioned, however, that Kohlberg Kravis might yet decide against an offering, depending upon how Blackstone's stock performs and how the tax issues play out in Washington.

A spokeswoman for Kohlberg Kravis declined to comment.

Though it made initial preparations months ago, Kohlberg Kravis moved forward after seeing the overwhelming interest in Blackstone's offering.

The two firms have dueled for years over the size of their fund- raising, their deals and their egos. Over the last year, the two have traded claims to the largest leveraged buyouts ever.

The rivalry extends to the personal realm as well. Relations between the heads of the two firms, Stephen Schwarzman of Blackstone and Henry Kravis of Kohlberg Kravis, have long

been frosty.

At Schwarzman's lavish 60th birthday party in February, the guest list notably excluded Kravis.

With the industry's two heavyweights pursuing offerings, equity firms like Carlyle Group, TPG Capital and Apollo Management may need to go public. The move allows the firms to

establish a permanent source of capital.

Altogether, the firm, which started in 1985 with just $400,000, will be valued at $33.6 billion, giving it a higher market value than more established financial players like Bear Stearns,

the investment bank.

Blackstone's appearance on the New York Stock Exchange, under the ticker BX, marks a watershed moment for private equity, the industry that uses borrowed money to buy

companies, turn them around and resell them for often handsome profits.

The last two years have proved extraordinarily lucrative for these firms, as lenient lenders and an influx of money from investors like pension funds have fueled a leveraged buyout

boom.

Unlike before, investors in Blackstone will hold pieces of the firm itself, rather than in one of its multibillion-dollar funds. That means unit holders will share directly in its profit, but in an

unusual twist, they will have little say over management of the company.

No one will reap more from the offering than Blackstone's two founders. With a 24 percent position in the firm, Schwarzman will hold a $7.7 billion stake and could earn up to $677

million from the offering's proceeds. That is on top of the nearly $400 million in compensation he took home last year.

The firm's chairman, Peter Peterson, who is retiring, will earn $1.88 billion from the offering and will retain a 4 percent stake.

Another private equity firm, Fortress Investment Group, went public in February at $18.50 a share. Its shares closed Thursday at $25.88.

Print this page

YellowBrix IndustryWatch Print Story Page 1 of 1

7/23/2007 9:05:30 PM http://www.industrywatch.com/pages/iw2/printStory.nsp?ID=iw&story_id=107733542