Blackstone's net more than triples to $774 mn

PRIVATE EQUITY WATCH

Blackstone Group LP, manager of the world's largest private-equity fund, said second-quarter earnings more than tripled as revenue at its four main units increased during a record year for leveraged buyouts.

Net income was $774 million compared with $224 million a year earlier, New York-based Blackstone, in its first report as a public company, said in a statement today. Economic net income after taxes, or profit excluding some costs related to compensation, rose to $515 million, or 46 cents a share, from $118 million, or 11 cents. Analysts expected profit of 34 cents, the average of six estimates compiled by Bloomberg.

The firm, founded in 1985 by Stephen Schwarzman and Peter G. Peterson, more than tripled revenue in its main private- equity business. While the early part of the period was ``fundamentally positive,'' concern over the US housing market and the volume of debt waiting to be financed for LBOs created ``more challenging financing conditions'' that are continuing, Blackstone said in the statement without elaborating.

``It's the most visible private-equity firm out there and it's a whipping boy one day and the best boy on the block the next,'' Paul Schaye, managing partner of Chestnut Hill Partners in New York, said before the earnings were released. ``We're seeing a squeeze on the debt markets and that changes the economics.'' His firm helps buyout firms find deals.

Blackstone shares had the biggest gain since their first day of trading. The stock rose $1.65, or 6.5 percent, to $26.93 at 9:36 a.m. in New York Stock Exchange composite trading. Before today, the stock had dropped 18 percent from the $31 offering price.

Blackstone had a net loss of $52.3 million, or 20 cents a share, from June 19 to June 30, the only days in the period it was structured as a public company.

Revenue climbed to $975 million from $325 million. Private- equity revenue growth accelerated to $426 million compared with $227 million during the first three months of the year.

The firm said Aug. 8 it had finished raising its latest buyout fund, the industry's largest at $21.7 billion. Blackstone also is raising about $11 billion for a new property-investment fund, mostly from pension funds, endowments and foundations.

The debt markets critical to funding leveraged buyouts dried up during July as investors rejected loans and bonds for purchases of companies including Alliance Boots Plc and DaimlerChrysler AG's Chrysler unit. About $400 billion in loans and bonds remain to be sold to fund announced deals, according to estimates from Baring Asset Management.

"A prolonged credit cycle could hurt the flow of deals and cause lower deal sizes,'' yet looser terms offered by banks may help Blackstone wait out the credit crunch, Deutsche Bank AG analysts Matthew Fischer and Mike Mayo wrote in an Aug. 1 note to investors. They rate the shares ``buy'' and don't own them.

Blackstone's offering and the high profile of Schwarzman, who threw himself a 60th-birthday party in New York earlier this year, were followed by scrutiny by the U.S. Congress over taxes paid by private-equity firms.

The House of Representatives and Senate are considering measures that would force private-equity firms to pay taxes at more than double the current level.

Taxes are among the issues cited by analysts trying to determine if Blackstone shares are worth owning. Seven analysts recommend buying the stock; one, Douglas Sipkin of Wachovia Securities Inc., recommends holding the shares.

Sipkin has the lowest price target, at $25.50. Banc of America Securities' Michael Hecht says the shares may rise to $38 a share.

Other firms have sought to sell stakes in their management companies in deals similar to Blackstone's. Kohlberg Kravis Roberts & Co., based in New York, filed for an IPO on July 3 to raise about $1.25 billion. Apollo Management LP earlier this month sold shares to qualified investors through Goldman Sachs Group Inc.'s private exchange.