Will Blackstone Remain a Busted Deal? (BX)

Blackstone Group LP (BX-NYSE) is only enjoying its third day as a public private equity entity.  Shares, well units, were trading north of $35.00 on most of Friday; and that compared to the $31.00 IPO pricing.  Shares slid yesterday on further tax concerns out of D.C. as an attack on wealth is feared to get worse and worse over the near future.  Today is proof to show just what all the hype and tabloid media coverage can generate.

Shares have fallen enough yesterday and again today to now put shares under the $31.00 IPO pricing.  That classifies the IPO in the hall of shame as a busted IPO.  Shares are now down 5% to $30.80.  It is hard not to go a day without hearing how we are at the top in M&A and that a private equity bubble exists.  This may be true on a leveraged basis and on a feeding frenzy basis, but private equity firms will still look where they can for value.  If you believe in the "follow the money" theory, you will believe they have no choice but to search for values.   

The truth is that these private equity funds on a combined basis still have many billions of dollars that needs to be put to work.  Many private equity funds have provisions that if certain portions of capital remain uncommitted for a certain period of time that the pension or investment group that invested in that fund has the right to withdraw funds.  That isn’t universally true, but it is in many such funds and has probably become more common on the newer and newer funds.

The tabloid coverage out of Barron’s last weekend sure didn’t help Blackstone, nor did it help other private equity funds and hedge funds that want to come public.  This is what can happen when the news turns into a media feeding frenzy.  Shares of Fortress Investment Group LLC (FIG-NYSE), a giant hedge fund that came public earlier this year, are also seeing further pressure.  Its shares are at a new low since its IPO at $22.66, down from post-IPO highs of $37.00. 

Maybe the public markets just aren’t appropriate for every type of entity.

Jon C. Ogg
June 26, 2007

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