Transcripts

Blackstone IPO Anticipation Grows

SUSIE GHARIB: The New York Stock Exchange is gearing up tonight for the biggest initial public offering in several years. Blackstone Group, the giant private equity firm, will begin trading tomorrow under the ticker symbol BX. A short while ago, Blackstone's IPO priced at $31 a share, the high end of the expected range, valuing the offering at $4.75 billion. But this afternoon two key congressmen tried to block the stock offering. Representatives Henry Waxman and Dennis Kucinich asked the Securities and Exchange Commission to postpone the IPO, saying it posed quote new and undisclosed risks for investors. Suzanne Pratt takes a look at whether investors should own a piece of this rock.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: When the Blackstone IPO begins trading Friday morning, most small investors will probably not be buying it at the offering price. After all, the deal has created something of a feeding frenzy, being reportedly seven times oversubscribed. And as is usually the case with hot IPOs, the little people won't get the first taste. They will, however, be able to buy New York-based Blackstone in the after-market, albeit probably for a higher price. The question is whether Blackstone should be purchased at any price. IPO expert David Menlow says maybe.

DAVID MENLOW, PRESIDENT, IPOFINANCIAL.COM: The only place you don't want to be is in the way because the stock is going to work and it's going to continue to work mostly because Schwarzman and his crew know to press this formula to the Nth degree.

PRATT: Champions of the deal say it should offer a unique chance for all investors to own a stake in a premier private equity shop. In its two decades in business, led by Steven Schwarzman and cofounder Pete Peterson, Blackstone has returned an average of 30 percent a year on its private equity portfolio. While it's hard to argue with Blackstone's past performance, some experts are concerned about the IPOs price tag. Morningstar analyst Jeff Patak says he's skeptical.

JEFFREY PATAK, ANALYST, MORNINGSTAR: I think that people even have to look at the initial offering price and ask themselves whether that's a sane valuation, a sane multiple to put on this company. For all its merits, it can still be very overpriced at the offering.

PRATT: At 25 times earnings, Blackstone's valuation is more than double that of Goldman Sachs, which is a more diversified financial firm. And then there's what been happening on Capitol Hill. Legislation has recently been proposed that would vastly alter the tax treatment of private equity firms that go public. If approved, Blackstone could be paying a lot more to Uncle Sam in five years time.

MENLOW: It adds a bit of uncertainty in terms of how this will price and how it will perform tomorrow. But I still think that the company is going to be fine and whether the stock is fine or not is another matter. That's going depend on what you pay for it.

PRATT: One other major unknown for all interested buyers of the IPO is whether Blackstone is going public at the top of the market. But that's certainly a question that no one can answer. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.