Should Blackstone Withdraw or Delay Its IPO?

With all of the negative press and attacks this week, you have to wonder what the Blackstone Group LP private equity going public is about.  We have received inquiries about how good or bad this IPO is going to be for those who purchase IPO’s.  The truth is that there is still a lot of calendar before the launch of the IPO hitting the NYSE, but the news is mounting.

The reality is that the media is sort of treating Blackstone and its top tier management with almost a feeding frenzy and it is becoming borderline like that of a tabloid.  This week, Stephen Schwarzman has come under fire for issues such as spending $400.00 for stone crab at lunch, paying lower tax rates than his chef, and being irritated by a servant’s squeeky shoes.  As long as it is all above board and doesn’t affect his business and dealings, then it should not matter.  But the fact is that people in general love watching the rich suffer in the media, and this is adding to the fire.  Otherwise we wouldn’t be hearing comparisons to Napolean and wouldn’t be hearing about strategies like "killing the competition" and unbelievable pay packages.  After the "Big Koz" got busted for $20,000 shower curtains and a $1 million birthday party, you just can’t help but understand why a media crush would keep referring to his lavish birthday party where Rod Stewart sang.

Congress is now attacking the tax structure of these large LP’s going public, and this directly impacts and targets Blackstone.  It also targets Fortress investment Group (FIG-NYSE), and its shares are down more than 6% today almost at its lowest point since coming public and down more than one-third from teh post-IPO highs of $37.00. 

China taking a $3 Billion stake for almost 10% probably didn’t help matters in Washington D.C.  With KKR and Carlyle and others all watching to see how this goes so they too can come public, it would seem this is coming to a head.  If Blackstone does go the distance to the actual IPO, it’s getting harded and harder to believe that the entire culmination of events this week is not going to lower some of the pre-IPO valuations and/or premiums.

Will this be the end or the unravelling of private equity and hedge funds?  Of course not.  But when "private" is open for public review and under fire it just makes you wonder if you haven’t seen a top in a trend that has been rampant over the last year.

Jon C. Ogg
June 15, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.