Private Equity Powerhouse Blackstone Puts Finishing Touches to Debut as Public Company

NEW YORK – Blackstone Group LP, the private-equity powerhouse that controls corporate names like Universal Studios Orlando and Madame Tussaud's, is just hours away from finalizing terms to bring the firm public.

The nation's second-largest buyout fund, run by billionaires Stephen Schwarzman and Peter G. Peterson, will spend Thursday monitoring investor appetite for what will likely be one of the biggest initial public offerings in U.S. history. The 17 investment banks underwriting the deal will spend most of the day trying to determine if there's enough demand for the stock to hike its offering price.

Blackstone's IPO is expected to raise between $3.87 billion and $4.14 billion, with shares expected to sell for $29 to $31 before they begin trading Friday on the New York Stock Exchange. If it comes in at the high end of the range, it will be the sixth-largest U.S. offering of all time and the biggest in nearly five years, according to Renaissance Capital and IPOHome.com.

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.

Since then, Blackstone made headlines by disclosing that Schwarzman made $400 million in 2006 and could walk away from the IPO with a stake in the company valued at as much as $7.7 billion.

"Everything about this deal's been unusual," said Phil Stiller, an analyst with Renaissance Capital.

The market has cooled some since its peak in the late 1990s, when there were more than 400 initial public offerings a year. The last blockbuster IPO was MasterCard Inc.'s $2.4 billion offering a little over a year ago.

But the market is ramping back up, and the number of IPOs so far this year has jumped 28 percent over the same period in 2006.

One area where the IPO market may cool, though, is among competitors to Blackstone in the private equity business. A bill pending in the U.S. Senate would tax publicly traded partnerships that derive profits from managing other people's assets at the same tax rate as corporations, abolishing a two-decade old provision that gave the partnerships a tax advantage.

The bill would effectively double the tax rates for private equity firms.

Blackstone would get a five-year exemption since it filed to go public before the bill was introduced, but the potential for a tax hike has at least temporarily slammed the brakes on the possibility of firms like the Carlyle Group, Apollo Management LP, and Kohlberg Kravis Roberts & Co. following in its footsteps.

There had been some speculation on Wall Street that the legislation might have been enough to persuade Schwarzman to nix the deal and instead protect its tax benefits by remaining private. Similarly, there was also talk on Capitol Hill that legislators might put pressure on the Securities and Exchange Commission to block the IPO.

However, Federal securities regulators gave no indication by late Wednesday that they planned to delay Blackstone Group LP's planned IPO. Christopher Cox, head of the SEC, said details of the firm's proposed offering were moving through the agency's normal review process.

Blackstone competitor Fortress Investment Group would also get the exemption, since it is already public, but the mere suggestion of a higher tax burden has weighed on the shares of late.

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.

"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.