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Blackstone skyrockets in debut

The offering is the sixth-richest IPO in U.S. history.

NEW YORK - Blackstone Group shares rose 13 percent in their stock market debut Friday, as investors scrambled for a piece of the sixth-richest initial public offering in U.S. history.

Chief executive Stephen Schwarzman now controls a firm whose market value stands at about $38-billion. His personal wealth also skyrocketed, with a 24 percent stake in Blackstone's management partnership worth about $8-billion, on top of the roughly $449-million he was expected to cash out in the IPO.

Exuberance about the booming private-equity industry overshadowed mounting criticism of the lavish lifestyles of top executives from politicians, labor unions and the media. The strength of Blackstone's debut marks a coming of age for the once-secretive industry, as it joins Wall Street's publicly traded top-tier investment houses.

"This is a new breed of publicly traded financial firm," said Matthew Rhodes-Kropf, a professor of finance at Columbia Business School. "Once the market demonstrates its appetite for this type of investment, we're going to see all the biggest and the best go public - even after the incredibly negative press it has generated."

For those lucky enough to get in on the IPO - a difficult task since most shares were snapped up by big financial institutions and money managers - the stock barreled past its $31 initial price. The shares closed up $4.06, or 13.1 percent, at $35.06. About 113.1-million shares traded hands - almost the full offering of 133.3-million shares.

The offering is the biggest U.S. IPO for a private-equity firm and the largest overall U.S. IPO in five years. It could open the floodgates for other alternative investment funds to go public.

Rival buyout shops will likely want to mimic Blackstone's approach, which provided Schwarzman and co-founder Peter G. Peterson with a clean way to unwind their stakes. Unlike most IPOs, where money raised boosts working capital to fuel expansion, the proceeds from Blackstone's IPO went mostly to its top executives so they could cash out their holdings.

In fact, the New York firm warned in a regulatory filing that it would not turn a profit for years to come because of high compensation expenses for its employees.

That didn't stop investors.

Peterson, 80, took $1.88-billion in cash out of the IPO. He will retain a small stake but is expected to retire next year. Schwarzman's heir apparent, Hamilton James, is expected to cash out $147.9-million from the IPO. He will still hold about 5 percent of the firm.

Fast Facts:

Jumping the gun
Blackstone Group's stock began trading on an electronic exchange before the shares opened Friday, leading to what the New York Stock Exchange said were bad trades. Before the NYSE opened trading, the Alternative Display Facility, which reports trades executed by brokers, quoted trading in the firm's shares. Thinking the shares had opened, the National Stock Exchange executed four trades of Blackstone stock totaling less than $100, 000. The ADF said some brokers began trading before the stock opened. The trades were canceled, the ADF said.
Associated Press

[Last modified June 22, 2007, 22:56:59]