bloggingbuyouts

This morning's Wall Street Journal [subscription] scored a coup -- an exclusive interview with Blackstone Group's (prospective trading symbol BX) CEO Steve Schwarzman.

The interview's theme -- that Schwarzman is the private equity industry's answer to Napoleon -- did not delve into the question of whether it makes sense to invest in what Schwarzman is selling to the public. But it did include some fascinating personal details:

• At 5' 6" he is a "little man" who wants to "inflict pain" on and "kill off" his rivals;
• He noticed that one of the servants at his 11,000 square foot Palm Beach mansion wore squeaky rubber soled shoes;
• He ate $400 worth of stone crabs there during his 15 minute lunches; and
• He neglected to invite his rival -- KKR partner, Henry Kravis-- to his lavish 60th birthday celebration -- to which a huge portrait of Schwarzman, which usually hangs in his living room, was shipped -- because he had never been invited to Kravis's home.

Should you invest with him? Yes. However, the securities he's selling in this IPO will not enable you to do so. I have been plowing through its prospectus and have come to the conclusion that you should avoid these securities. Here's why:

• The Blackstone IPO offers units of a limited partnership rather than stock, which becomes very complicated for tax reasons;
• Blackstone IPO owners will need to file an extension with the IRS every year because, according to MarketWatch, Blackstone will likely never deliver them the forms they need to file those taxes in a timely manner;
• Blackstone IPO owners will have no rights against Blackstone because by agreeing to the offering terms, they waive all of their legal claims against Blackstone's partners for anything they do;
• Blackstone will lose money for years due to amortization of goodwill -- resulting from an increase in the reported value of its assets following the IPO -- and its high compensation costs. Not only that, but Blackstone will report a bogus economic net income figure -- net income excluding the impact of income taxes, non cash charges related to vesting of equity-based compensation and amortization of intangible assets -- instead of net income; and
• With interest rates rising [subscription], so is the cost and risk of financing new private equity deals. This means that future returns for Blackstone's investors are likely to decline.

The Blackstone offering will inflict pain on the public and rivals who will need to decide whether to follow in Schwarzman's footsteps. As structured, the offering will give Blackstone access to capital and a public valuation for its holdings but will grant the public no control and very little information.

When you're Napoleon, you don't need to worry about the little people who are foolish enough to be one of your servants. That's why you should stay away from this offering.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.