Co-founders to make $2.33 bn in largest issue by an LBO firm

Co-founders to make $2.33 bn in largest issue by an LBO firm
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First Published: Wed, Jun 13 2007. 02 43 PM IST
Updated: Wed, Jun 13 2007. 02 43 PM IST
New York: Stephen Schwarzman and Peter G. Peterson, who started Blackstone Group LP two decades ago with $400,000, stand to collect a combined $2.33 billion (Rs9,553 crore) from the largest initial public offering by a leveraged buyout (LBO) firm.
The 60-year-old Schwarzman will receive $449.2 million for selling some of his holdings, leaving him with a 24% stake, New York-based Blackstone said late on Monday in a filing with the US Securities and Exchange Commission. Peterson, 80, who’s retiring next year, will get $1.88 billion and retain 4% of the company.
Blackstone, manager of the world’s second largest buyout fund, is going public after spending $199 billion on acquisitions since its founding in 1985. The offering will provide Schwarzman and Peterson with a bonanza dwarfing what Goldman Sachs Group Inc.’s partners made in that firm’s initial sale. Not even Google Inc.’s founders reaped as much in their IPO as Schwarzman will in Blackstone’s.
Blackstone’s offering is scheduled to be priced during the week of 25 June, according to a calendar posted on the website of Morgan Stanley, one of the IPO’s managers. The company plans to sell shares for $29-31. At $30, Blackstone would have a market value of $32.4 billion, with 12.3% of the stock held by the public and China’s state investment company buying a 9.7% stake in a private transaction. Schwarzman’s holdings would be valued at $7.73 billion, according to the filing. Peterson would still hold $1.31 billion of stock. Schwarzman made $398.3 million last year and Peterson earned $212.9 million.
Blackstone said in the filing that the executives’ compensation is based on their ownership stakes and the firm’s fees and profits from its buyout, real estate and investment funds.
The value of Schwarzman’s stake would place him at number 32 on the Forbes magazine list of richest Americans, tied with News Corp. CEO Rupert Murdoch.
Schwarzman’s compensation fell short of his colleagues in the hedge fund industry, where the average pay of the top 25 hedge-fund managers was $570 million last year, according to Institutional Investor’s Alpha magazine.
The company plans to sell 133.3 million shares in the IPO. At the midpoint of $30, it would raise about $3.83 billion after underwriting costs, according to the SEC filing. China’s soon-to-be-formed State Investment Co. is paying $3 billion for its stake, a 4.5% discount to the IPO price.
Schwarzman is selling about 5.7% of his stake in Blackstone while Peterson is selling about 59%, according to the filing.
Blackstone’s net income rose 71% to $2.27 billion last year. The company said it may post net losses “for a number of years” as it accounts for the cost of buying stakes from its executives. The firm manages $88.4 billion, including $19.6 billion in its most recent buyout fund, the second largest after the $20 billion pool run by Goldman.
The company will pay existing owners about $610.4 million in “undistributed earnings” before the offering, Blackstone has said in previous filings, noting that the amount may change. The founders will receive 27.8% of the partnership units, which are both vested and unvested. Other senior managing directors will receive 45.8%.
Blackstone operates in India as Blackstone Advisors India Pvt. Ltd, which is headed by Akhil Gupta, chairman and managing director (see the story above).
LBO firms use a mix of cash from investors plus their own funds and debt secured on the target they buy to finance their deals. They typically seek to expand companies or improve performance before selling them within five years to other funds or investors in initial public offerings.
The shares will be listed on the New York Stock Exchange under the ticker BX.
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First Published: Wed, Jun 13 2007. 02 43 PM IST
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