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Blackstone to raise US$4bn from initial public offering

Blackstone Group LP, one of the world's biggest private equity firms, said on Thursday it was seeking to raise up to US$4 billion in a highly anticipated initial public offering.

The New York-based company, known for its multibillion dollar takeovers such as last month's US$23 billion buyout of Equity Office Properties, announced its intentions to go public in a filing with the Securities and Exchange Commission. The firm plans to list on the New York Stock Exchange.

Blackstone -- founded in 1985 by former Lehman Brothers Holdings Inc bankers Stephen Schwarzman and Pete Peterson -- said the initial public offering will allow it to tap new sources of capital for buyouts. In addition, it helps extend Blackstone's brand name and gives management a way to profit from the increased value of their stakes.

The deal ends more than a week of speculation that Schwarzman planned to turn the firm -- known globally for bringing major companies private -- into a public entity. The regulatory filing also sheds new light on the tightly held buyout shop.

"They've operated in their own stealth realm for so long that this really does take advantage of the flipside of the coin -- they have an opportunity to benefit by being a public company," said Denise Valentine, senior analyst at business consultancy Celent LLC's securities and investment group. "This is going to be a big IPO, oversubscribed, and it will give Blackstone a bigger kingdom."

First off, Schwarzman and other top management don't plan to cede control of the company -- or the collection of companies it has acquired. He plans to structure the company to leave control in the hands of its partners.

Blackstone Group is managed by general partner Blackstone Group Management LLC, which is owned by the company's senior managing directors. Holders of the company's common stock will have only limited voting rights and will have no right to elect the general partner or its directors, according to the prospectus.

The firm had US$78.7 billion in assets under management as of March 1, according to the filing. Net income for last year more than doubled to US$2.27 billion from US$1.33 billion a year earlier.

It also said it has had a 22.8 percent annualized return in its corporate private equity business, while its real estate holdings has a 29.2 percent return. These represent Blackstone's two biggest businesses.

"We intend to continue to follow the management approach that has served us well as a private firm of focusing on making the right decisions about purchasing and selling the right assets at the right time and at the right price," the company said in the prospectus, "without regard to how those decisions affect our financial results in any given quarter."

The filing has raised speculation that this might be the future for private equity firms, many confronted with a contraction in global stock markets that could stymie funding. Already, rival Fortress Investment Group LLC raised US$643.3 million when it became the first private equity or hedge fund to go public.

Private equity funds, which used to be known in the industry as leveraged buyout firms, use cash raised from investors and from its own coffers to buy companies. The past few years has seen many of these firms band together to take over companies on a scale never imagined before, including Harrah's Entertainment Inc, energy company TXU Group Inc, and lawn care company ServiceMaster Co.

The next step for private equity firms is to profit by taking these companies public again within five years after the initial deal.

Blackstone has a varied portfolio of companies that includes Madame Tussaud's waxwork museums in New York and London. It took German chemical company Celanese Corp private, and then relisted it on the New York Stock Exchange in 2005.

The most recent coup for the firm was last month's US$23 billion acquisition of Equity Office Properties, which is the largest office landlord in the US. The purchase was the largest private equity deal on record.

Beyond taking companies private and managing a real estate portfolio, Blackstone also profits from advisory services, making it into a more diversified financial services company like Goldman Sachs Group Inc.

Schwarzman, 60, was listed as Forbe's magazine's 249th richest person with about US$3.5 billion of assets. He shares that rank with about 14 others on the annual billionaire's list.

Morgan Stanley Inc, Citigroup Inc, Merrill Lynch & Co, Credit Suisse Group, Lehman Brothers and Deutsche Bank Securities are listed as underwriters.
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