Monday, May 21, 2007
Blackstone Group filed their amended S-1 today. Lots of interesting stuff in it; the papers are mostly focusing on the S-1's disclosure of a $3 billion purchase by the Chinese government of the non-voting common units being offered. The price paid per common unit will be equal to 95.5% of the initial public offering price, and the money will go directly to Blackstone's current owners.
I'm not too worried about the investment itself. If the Chinese government wants to invest in non-voting common stock in a high-flyer that is its prerogative. Breakingviews put it better than me noting that we are amidst a private equity bubble and stating "[i]n this case, there may be no greater fools than the Chinese bureaucrats who are taking this buyout bet on the private-equity firm’s non-voting stock. . . . ”
More interesting and with much greater ramification, would have been such an investment in Blackstone's funds itself rather than in Blackstone. Here the S-1 stated that:
The State Investment Company has agreed to explore in good faith potential arrangements pursuant to which it or its affiliates would invest in or commit to fund amounts to current and future investment funds managed by us and to evaluate in good faith and consider investing in any comparable funds or vehicles offered by us in connection with any investment they make in alternative asset funds or vehicles.
So, the investment is probably most significant for future tie-ups between Blackstone and the Chinese government. There is probably only so far the Chinese government can go with these U.S. investments before it becomes a U.S. national security issue. This is particularly true in light of the pending congressional bill to heighten review of takeover transactions for national securities issues and the increased scrutiny of foreign investments it will bring (for more see my blog about the politics of national security here). But, how far is too far is still to be determined. Stay tuned.
All this is prelude to the disclosure which really caught my eye:
An investment vehicle composed of certain partners of Simpson Thacher & Bartlett LLP, members of their families, related parties and others owns interests representing less than 1% of the capital commitments of certain investment funds managed by Blackstone. Certain partners of Simpson Thacher & Bartlett LLP may purchase common units in this offering pursuant to the directed sale program in an aggregate amount equal to less than 1% of the common units.
We last saw the issue of lawyers investing in their IPO clients back in the technology bubble (back then Wilson Sonsini was the leader in these investments). This practice is yet another sign of private equity boom times. It is a practice that has been barely tolerated because of the conflicts it creates and its impingement upon the role of lawyers as gate-keepers. But I'll leave it to the experts for a more detailed analysis of whether this is truly bad practice.
Update: Jeff Lipshaw, a fellow member of the Law Professor Blog Network and editor of the Legal Profession Blog, has some further thoughts on this issue.