Despite fears of legislation that would increase the tax that investors pay on the income from Blackstone, the Wall Street Journal reports that investors are clamoring for the soon-to--be publicly traded units of Blackstone's master limited partnership.
Meanwhile, Blackstone is clipping the fees of the advisors who will help take Blackstone public. Bloomberg News reports that the 17 banks taking it public will get a fee totaling a mere 3.6% of their fraction of the IPO amount -- $170 million -- a bit more than half of the 6.2% IPO fee average. But there's quite a bit of trading going on here. By giving every investment bank a piece of the IPO business, Blackstone is assuring that none of their analysts will criticize the deal. And then there's the promise of big fees down the road to help Blackstone finance and close future deals with its $19.6 billion fund. Blackstone paid $571.4 million in such fees in 2006.
Reiterating what I've said earlier, the Blackstone IPO is not a good deal for public investors. They'll be buying an entity that is forecast to lose money for years to pay the compensation of Blackstone's partners and staff and to amortize goodwill -- the difference between the book value and the new market value of its assets. And they'll get no control, little information, and very little legal recourse to change the company if things go wrong.
Schwarzman's attitude towards public investors seems to echo that of another famous French figure, Marie Antoinette, "Let them eat cake!"
Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He aalso teaches management at Babson College and edits The Cohan Letter.
