Blackstone’s market cap to hit $32.4 b after public offer

NEW YORK: Blackstone Group co-founders Stephen Schwarzman and Peter G Peterson will get $2.33 billion and keep 28% of the company after its planned initial public offering, the largest by a private-equity firm. Schwarzman will receive $449.2 million for selling some of his holdings, leaving him with a 24% stake, New York-based Blackstone said on Monday in a filing with the US Securities and Exchange Commission (SEC). Peterson will get $1.88 billion and own 4% of the company.

Blackstone, manager of the world’s second-largest buyout fund, plans to go public as soon as this month after taking part in $199 billion of deals in the past 20 years. The company, which started with $400,000, will 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.

“The equity values are large enough that you can’t ask the junior partners to buy you out at full value,” said Frederick Joseph, managing director of Morgan Joseph & Co in New York, and former chief executive officer of Drexel Burnham Lambert. Schwarzman’s stake will be valued at $7.73 billion if Blackstone’s shares sell for $30 apiece in the IPO, according to the filing. Peterson’s remaining shares will be worth $1.31 billion.Schwarzman, 60, made $398.3 million last year, according to the filing. Peterson, 80, earned $212.9 million. That tops the $54 million Goldman Sachs Group paid to CEO Lloyd Blankfein for running the world’s most profitable securities firm.

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. Schwarzman’s 2006 take fell short of his colleagues in the hedge-fund industry, where the average compensation of the top 25 hedge-fund managers was $570 million last year, according to Institutional Investor’s Alpha magazine. James Simons, chairman of Renaissance Technologies, was paid an estimated $1.7 billion, stated the magazine.

Blackstone’s net income rose 71% to $2.27 billion last year. Earnings at New York-based Goldman, whose market value is $98 billion, climbed 70% to $9.54 billion. Blackstone 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 plans to sell 133.3 million shares in the IPO at $29-31 each. At the midpoint of $30, it would raise about $3.83 billion after underwriting costs, according to the SEC filing. Underwriters may sell an additional 20 million shares depending on demand. China’s soon-to-be-formed State Investment is paying $3 billion for its non-voting stake.

Hamilton James, 56, president and COO, will get $147.9 million for some of his stock and keep a 4.9% stake valued at $1.6 billion. He earned $97.3 million last year. J Tomilson Hill, 58, the VC who heads the company’s hedge-fund unit, will own 1.6% of the shares valued at $535.4 million, after receiving $22.1 million. He was paid $45.6 million in 2006. Chief financial officer Michael Puglisi, 56, will retain a 0.7% stake worth $231.2 million after getting $13.4 million. He earned $17.4 million last year. PE firms also are considering IPOs or private placements of shares.

New York-based Fortress Investment Group was the first US manager of hedge funds and private-equity to sell a stake to investors, raising more than $634 million in February. Its shares have risen 38% since.

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.

Buyout firms raised $210 billion in 2006, 57% more than the year earlier, according to London-based research firm Private Equity Intelligence. They announced a record $701.5 billion in takeovers, according to the latest data, driven by the lowest borrowing costs in a decade.