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Blackstone shares close below IPO price

They drop 5.2% on concern that the private equity boom may have peaked and worry over a bill to raise tax rates.

June 27, 2007|From Reuters

Blackstone Group's shares slid 5.2% on Tuesday, closing below the $31 price the private equity giant fetched in its initial public offering last week, as investors worried that the private equity boom might have peaked.

"There's some people who think the top of the private equity binge was marked when Blackstone became public," said Elliot Spar, market strategist with Ryan Beck & Co. in New York.

Blackstone shares traded as low as $30.32 before closing at $30.75, down $1.69 from Monday's close and off 12% from their closing price Friday, the stock's first day of trading.

Long-term interest rates have been rising in recent months and may be making it more difficult to complete private equity deals.

Dutch supermarket chain Ahold's U.S. Foodservice unit put off the borrowing that was planned to help finance a $7.1-billion leveraged buyout of the company by two Blackstone rivals, Clayton, Dubilier & Rice and Kohlberg Kravis Roberts & Co., sources told Reuters Loan Pricing Corp. on Tuesday.

Some observers attributed the weakness in Blackstone shares this week to concerns about a bill in Congress that would raise the tax rate on the earnings of publicly traded private equity firms to 35% from 15%.

And some fear that Washington will look for new ways to tap private equity and hedge fund riches beyond raising the tax rate.

"There's sort of an unspecified fear that Congress is going to do more to impede" hedge fund and private equity firms, said Robert Willens, an accounting and tax analyst at Lehman Bros. in New York. "I'm getting a lot of panicky calls about that."

Blackstone Chief Executive Stephen Schwarzman's personal stake in the firm he co-founded rose by $1 billion to $8.75 billion Friday. At Tuesday's close, that stake would be worth less than $7.7 billion.

Shares of New York-based hedge fund Fortress Investment Group, which manages private equity and hedge funds, also declined Tuesday, closing at $22.30, down 95 cents, or 4.1%.

Fortress' shares have been moving lower since June 15, when the threat of higher taxes first surfaced. The company went public in February at $18.50 a share. The stock closed at $31 on its first day of trading.

Also Tuesday, Securities and Exchange Commission Chairman Christopher Cox told the House Financial Services Committee that Blackstone did not have to register as an investment company.

Had the firm been forced to register under the Investment Company Act of 1940, it would have been subject to much more regulation.

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