Blackstone Rises as Schwarzman Reassures Investors (Update3)
By Jason Kelly
Feb. 27 (Bloomberg) -- Blackstone Group LP gained the most in more than three months in New York trading as Chairman Stephen Schwarzman told investors it’s buying back the debt of some of the companies it owns and plans to resume paying dividends this year even as the leveraged buyout business slumps.
Blackstone posted a fourth-quarter loss of $827.1 million after writing down the value of its private-equity and real estate holdings, the New York-based company said in a statement today. Investments in companies it owns, including Hilton Hotels Corp., are performing better than competitors and the firm is pressing its holdings to cut costs and reduce borrowings in part by buying back their own debt, Schwarzman said.
“It shows the power of what we actually do for a living,” Schwarzman, 62, said on a conference call today. “We have substantial dry powder in all of our funds at a time when many of our competitors are impaired.”
Schwarzman said his firm has about $13 billion in unspent private equity commitments. The statements help ease investor concerns tied to the LBO business, which has virtually evaporated amid a lack of credit for new deals. The troubled global economy has also weighed on companies that Blackstone and its competitors bought during the now-collapsed LBO boom.
Blackstone rose $1, or 26 percent, to $4.87 at 4 p.m. in New York Stock Exchange trading, the most since Nov. 24. Blackstone is trading 84 percent below its $31-a-share 2007 IPO price. Schwarzman today called the current price “dimwitted.”
Distributions in 2009
Chief Financial Officer Laurence Tosi told investors on the call that Blackstone had converted some assets into cash to ensure that it could pay the full $1.20 to shareholders in 2009. In its statement, the company said that it wouldn’t pay a planned distribution to public shareholders for the fourth quarter after paying a total of 90 cents earlier in the year.
Blackstone, the world’s biggest private-equity firm, announced $169 billion of buyouts in 2006 and 2007, according to data compiled by Bloomberg, and now is pursuing few new deals. Since the beginning of 2008, it’s completed $9.2 billion in transactions.
Banks, coping with losses of about $1 trillion since the onset of the credit crunch in 2007, aren’t committing new debt, the lifeblood of LBOs. Private-equity deals dropped more than 60 percent to $211 billion last year, according to data compiled by Bloomberg. Blackstone wrote down the value of its private-equity assets by 20 percent.
“They’re managing their current book instead of actively investing, at least at this point,” said Daniel Fannon, an analyst with Jefferies & Co. in San Francisco who rates Blackstone shares “hold” and doesn’t own them.
Less Debt
Blackstone is lightening its companies’ debt loads, joining them in buying loans and bonds at discounts, Schwarzman said on the conference call.
Blackstone’s fourth-quarter loss of 68 cents a share, excluding costs linked to its 2007 initial public offering, compared with a profit of $88 million, or 8 cents, a year earlier. The result missed estimates of a 40-cent loss, the average of seven analysts in a Bloomberg survey.
Blackstone’s companies include Hilton Hotels Corp., where profit grew 9 percent in the fourth quarter; Freescale Semiconductor Inc.; Nielsen Co. BV and The Weather Channel.
Schwarzman has pushed the firm he founded with Peter G. Peterson in 1987 deeper into hedge funds and merger advice to offset the decline in private-equity deals. A former investment banker at Lehman Brothers Holdings Inc., Schwarzman has seen profits of late only from Blackstone’s unit that advises companies on mergers and restructuring.
Financial Advising
The financial advisory group earned a profit of $22.5 million in the fourth quarter, down 35 percent from the previous year. Led by John Studzinski, the unit is engaged on assignments including helping American International Group Inc. dispose of some assets after its seizure by the U.S. government.
Much of the Blackstone’s recent investing has been made through its GSO Capital Partners LP business, which buys distressed debt. The company also created a new group to pursue infrastructure investments and is seeking about $2 billion for a fund for those types of investments.
The firm said today it was launching a new fund focused on “rescue financing” as companies struggle to arrange new bank debt.
Blackstone today said GSO, which had net inflows of $4.6 billion last year, is up so far in 2009. The firm’s fund of funds business also is in positive territory, the firm said.
“Our market share will go up because some of our competitors have had a tough time,” Schwarzman said. Unlike other funds of funds, Blackstone did not invest in funds managed by Bernard Madoff, arrested in December for allegedly operating a $50 billion Ponzi scheme, Schwarzman said. |
