Everyone Wants In on Blackstone Deal

Friday's IPO could bring an opening spike for the ages.
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Blackstone's IPO is shaping up as a huge hit on Wall Street, even if some people can't stop sweating the firm's tax outlook.

The private-equity shop's $4.75 billion initial public offering is slated to be priced after the market closes Thursday. The deal is drawing frenzied demand, according to observers who track the IPO market.

One watcher said demand translated to an oversubscription from hungry investors equivalent to five to six times the shares being offered. That could mean Blackstone will see a spike reminiscent of derivatives exchange



, whose shares more than doubled on their open last November and ended up with a 125% first-day gain, and hedge fund firm



, which registered a 68% first-day gain back in February.

Blackstone is planning to sell 133 million so-called partnership units at $29 to $31 apiece. Shares are due to start trading Friday morning on the

New York Stock Exchange


The news comes as the Senate Finance Committee has placed a bull's-eye on Blackstone CEO Stephen Schwarzman. A bill under consideration would tax the firm and similar outfits at 35% or so -- compared with the 17% rate that partnerships like Fortress and Blackstone pay under current laws.

Fortress shares fell 6.5% Friday on news that some on Capitol Hill are aiming to ratchet up taxes on private-equity and hedge fund firms.

John Fitzgibbons, former investment banker and analyst at IPOScoop.com, says the tax situation is worrisome. But he adds that any tax code amendments likely wouldn't affect Blackstone until after 2012, because of a transitionary clause embedded in the proposal.

David Menlow, president at public offering specialist IPOFinancial.com, says that investors should be wary of buying Blackstone for the long term, because of the tax issues. But he is bullish on the company coming out of the gate.


public offering could be the last of its kind," he says, noting that tax changes could undercut future private equity and hedge fund efforts to tap the public markets. "This company is the closest representative of a cash cow as you're ever going to see."

Long-term investors in Blackstone face the possibility that taxes could reduce the ability of the company to generate gangbuster returns. But for now, the outlook remains sanguine for future LBO activity.

"If you look at Blackstone and you look at the sector, regardless of what the political climate might be, private equity has been very strong," says Todd Huxster, editor and researcher at IPO advisory firm IPO Vital Signs in Chester Town, Md.

Anticipation for Blackstone is heady partly because the IPO represents a unique opportunity for mom-and-pop types to own a stake in a fund that has been the exclusive remit of deep-pocketed wealthy individuals and institutional investors. Fortress' share sale in February was the first public offering of a hedge fund company, but Blackstone brings much more glitz.

The firm, after all, is seen as the paragon of private-equity shops for its heady buyout activity -- and its high-profile co-founder Schwarzman, who has a penchant for living the high life.

"This is a museum piece," says Fitzgibbons, "and people will need to stick it in their portfolios come hell or high water."