Blackstone? Public? Say it ain’t so, Joe!
I snickered when I first heard the news; it sounded more like a trial balloon. The air was thick with irony the day Blackstone Group slipped the idea of selling 10% of the firm for a mere $4 Billion clams.
The firm has been in the vanguard of promoting the concept that companies "back away from being public," on the onerous requirements of SarBox, and lastly, the undervalued nature of the equity markets.
I still don’t believe it. If it turns out to be true — and so far, its just a rumor — I would have to do a 180 on my prior views on the firm and its leadership.
It would mean that all those high falutin’ ideas turn were just so much pablum. BG would be like every other Wall Street entity, a crowd of snake oil salesman, only this crew were a little slicker in their patter, a little smoother in the line of bullshit they were pushing.
The first thought that should pop into your head whenever you read or see someone touting a position that seems "off" is to ask "What are these guys selling?" Now we know: Themselves.
What was in it for them to press an argument that may turn out ot be mere PR spin? More than money — they created an image, a brand with an air of cool around it, that greased the skids for their takeovers; To hell with the public markets, we have so much cash that we are above all that nonsense. Quarterly conf calls? Fuggedaboutit! I got your Sarbox right here!
Only all those intellectual arguments may turn out to be just another set of lies from another sleazy commission based broker. Now that it has served its purpose, we are on to the next argument.
Barron’s Mike Santoli points out that:
"Many are asking why Blackstone chief Stephen
Schwarzman would reverse his stated anti-IPO position and subject
himself to the quarter-by-quarter scrutiny of a public company, which
he has decried in the past. Well, Schwarzman and other LBO artists buy
average companies which they perceive to be under-managed or misvalued
by the public, and retool or leverage them up in private.One thing’s for sure: Schwarzman (he of the $3
million birthday party and Fortune magazine’s recently crowned "New
King of Wall Street") doesn’t consider his company anything near
"average," or "under-managed." And he and his partners are probably
confident that, like Goldman Sachs
(GS), Blackstone can enjoy the rewards of public ownership without ever
divulging exactly how its money is made. While the investment climate
is strong, that is.But mustn’t this mean the peak of the easy-money
craze for financial engineering and ever-larger private buyouts?
Probably not. After all, Goldman’s IPO didn’t mean happy days on Wall
Street were about to come to a crashing end. That didn’t happen until
10 months later."
When the Smart Money sells, ask yourself who is buying. Answer: Dumb money.
10 Months? That sounds about right . . .
>
Source:
Business as Usual?
MICHAEL SANTOLI
Barron’s MARCH 19, 2007
http://online.barrons.com/article/SB117408671669640044.html
Bravo. Encore.
That was exactly my reaction to the letter yesterday on seeing the news. That said let me take the other side of the debate. Their thesis is that they take companies private and turn them around thru a combination of financial engineering and operational improvements out of view of quarterly scrutiny. And then the need an exit so they take them back public.
1. These companies are apparantly worth more privately but Blackstone is both well-run and private, ergo lots of money is being left on the table.
2. The same leverage-based liquidity on nearly similar terms (low interest, no down, no amortization) have been presented to the PE guys for their deals. IF the credit crunch spreads then their current public market value is at a peak and they would be foolish to not take advantage.
The whole rationale depends on long-term operational performance improvements and the escape from the tyrannies of quarterly reporting. I’d point out for the latter that such world class companies as Expeditors Int’l and Fedex have dealt just fine for decades with quarterly reporting by letting the chips fall where they may and being honest. As for operational improvements I challenge anyone to look at any of the deals, especially the ones with huge special dividends based on borrowing, that aren’t reflections of financial engineering, expose the targets to excessive leverage and give little or no attention to operations and the business. Start with Sears, go to HCA and so on. An interesting exercise.
In short: cashing out while the cashing is good, before the market falls.
Oh by the way, why did the Fed splash out $57 billion in short term money to primary broker dealers in the last 2 DAYS of the week? Answer: “prop up the ____” and you fill in the blank.
Why not take the Big Picture public?
I briefly, very briefly, considered the notion that the rationale for an IPO might be to ensure the organizational continuity that comes from being a public company.
Then I thought about Cargill, Hallmark and other great private companies that have not only survived the loss of dynamic founders and great leaders, but also thrived after their loss.
So I went back to my original thought that the most likely reason why Blackstone would go public is because Schwarzman, like almost every Wall Streeter I know, measures his self worth by the size of his pile.
It’s about ego.
But taking 10% off the table doesn’t seem like much of a score. Doubtful that they could unload a lot more after the IPO if they believe the market will turn in the near future…
I found it interesting that the Chairman of the Council on Foreign Relations(CFR)is Peter Peterson…who happens to be the Senior Chairman and Co-Founder of Blackstone Group…
See
http://www.cfr.org
http://en.wikipedia.org/wiki/Peter_George_Peterson_(USSecCommerce)
Barry, any thoughts on Soros re ARXT? Looks bad, very bad.
i just listed my house this morning.
http://www.reuters.com/articlePrint?articleId=USL1470530620070314
Wow, the biggest bull of all bulls (Jim Rogers) is throwing in the towel.
I guess, the subslime mold is spreading fast.
Borrowing from Doug Kass:
“To paraphrase, Frankenstein’s Dr. Waldman, the credit markets (and Wall Street) have created a monster (subslime) — and it will destroy the economy…
Subslime? Look! It’s moving. It’s alive! It’s alive!”
Blackstone IPO?
Say What?
A private-equity firm is going public?!?
Is it a sign of a coming crash?
Great. We’ll know to buy when they take it back private.
Who says you have to release all information once you go public… You can always go Public and then move to Dubai… No clue what’s going on, These guys have been making offers to everyone on the street (would seem like somehow they are helping hold the market)… A month ago they had made an offer to take home depot private and the stock had gone up like $2-3. And cashing … Na Na 10% is in no terms cashing out. They can easily strike a deal with GS or CSFB and get the money and still remain private. I have no clue.. But something is cooking
Just another sign of the times. Sam Zell hits the bid, value guys close their funds and let the cash pile up, Paulson takes the tax free guvmint money and runs, hedge funds IPO…
they may not ring a bell at the top, but the smart/greedy money always makes sure they ring the register.
great blog and posts all.
ciao.
If the Blackstone private equity assets stop paying enough dividends to make the leveraged loan payments could you use public IPO money to pay those debts without disclosure?
I like to bring out an old saying I’ve used for ever when encountering people like Schwarzman in these situations: “You want to know what I thinks?”…”I think he’s slicker than whale shit on ice.” I like this one too: “More money has been stolen with brief cases than with guns”….true !
Sorry if I’m being naive, but wouldn’t the main effect of the offering be to allow Blackrock to make bigger deals by leveraging its public equity value to make deals with low-cost debt instead of relying on passive limited partners? As for secondary effects, hasn’t Goldman (debt-to-equity > 10) done pretty well by its shareholders? How Blackrock will perform is anyone’s guess, but its returns would be available to small investors, not just Ivy League trust funds and the like. It should also be able to focus on the deals more than fundraising. Of course one could say there’s an element of wanting to see whose is bigger, but that would be neither unique to this situation nor incompatible with rewarding shareholders.
why or how can one correlated GS’s IPO to a market crash?
Your blog is a hit; that means dumb money is reading it? I don’t quite understand the logic in ur last post.
Dear BP — Private equity has always had a–shall we say–“flexible” perspective on the value of the public equity markets. See my recent post for more.
http://epicureandealmaker.blogspot.com/2007/03/crooked-timber.html
By the way, you’re right: it’s about the money.
The Epicurean Dealmaker
Definitely signals a top in private equity, as I point out on my blog today: http://www.peridotcapitalist.com