June 21, 2007
The Blackstone IPO
The Blackstone IPO is way oversubscribed. The underpricing tomorrow will be horrific. Priced at 29 to 31, watch the run by the end of the day to double that. Others have noted the ironies in this IPO: 1) a company that takes others private is going public, 2) small investors can buy stock in a firm that puts investments together for only the sophisticated and wealthy, 3) knowledgeable insiders are exiting, in part, a mature market in buyouts and inviting the noise traders, who know nothing of the state of the buyout market, to get in. I focus on the nature of the offering itself. It reminds me of Google. A company worth $32 billion is selling a small fraction of itself, $4.8 billion, and over half, $2.6, is going directly into the pockets of the founders not into the company. Moreover, the new shareholders will have no management power at all. In other words the company does not need the money and is not conceding any manager rights to the new shareholders (other than the right to sue for breach of fiduciary duties perhaps). This is a pure liquidity play for the exclusive benefit of existing insiders; the insiders want to be able to sell shares in a public market and the markets are content to play along, assuming a speculative gain in a roller coaster stock.
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