Blackstone raises $4.1 bln

Blackstone Group Chairman and CEO Steven Schwarzman in an undated photo. Blackstone said on Thursday it raised $4.13 billion in an initial public offering priced at the top of a forecast range in the biggest U.S. IPO in five years.

NEW YORK (Reuters) - Blackstone Group LP priced its initial public offering at the top end of the range on Thursday, even as lawmakers pushed for its delay, raising $4.13 billion in the largest U.S. IPO in five years.

The pricing, closely watched by regulators and financial markets across the globe, proved that demand for the offering was heavy, despite pressure from Congress.

Blackstone's planned opening on the New York Stock Exchange on Friday is a watershed event for the booming private equity industry, as Blackstone is the first major U.S. buyout firm to take part of itself public. It will trade under the symbol

"BX".

Blackstone co-founders Stephen Schwarzman, 60, and Peter Peterson, 81, will earn a huge windfall from the IPO, pocketing more than $2.4 billion between them. Schwarzman's stake alone is worth $7.74 billion.

The public float will also shower hundreds of millions of dollars onto the firm's senior members.

Equipped with $400,000, Schwarzman and Peterson founded the firm in 1985 after leaving top posts at Lehman Brothers. Blackstone started as mainly an M&A advisory boutique and grew into a private equity powerhouse.

In addition to its advisory, private equity, and real estate group, the firm has six other investment funds with more than $88 billion under management.

"As one can see by the trajectory increase of assets under management, their compound annual growth is simply phenomenal," said Scott Sweet, managing director for research firm IPOboutique.com.

The $4.13 billion IPO values Blackstone at $33.48 billion, or roughly one-third of Goldman Sachs Group Inc.'s market value, and three-quarters the size of Lehman Brothers.

Blackstone plans to raise an additional $3.75 billion through selling a stake to the Chinese government. The firm will use most of the proceeds to pay out employees, with roughly $1 billion going to pay for borrowing costs and strategic acquisitions, according to its prospectus.

WASHINGTON WATCHING

A last-minute plea from California Democrat Henry Waxman to delay the IPO was rejected by U.S. regulators on Thursday.

The chairman of the House Committee on Oversight and Government Reform was among the politicians taking aim at the offering. While lawmakers have been mulling whether to alter the favorable tax treatment private equity firms receive, they seized on the Blackstone IPO shortly Schwarzman's riches and his lavish lifestyle become a popular subject in the media.

Waxman's attempt came a day after Max Baucus, co-author of a U.S. Senate bill that would raise taxes on private equity firms going public, said he was open to shortening a transition period that cushions any potential tax hit on Blackstone.

The bill would require publicly traded partnerships deriving income from investment adviser and asset management services to pay the federal corporation tax rate of up to 35 percent instead of the 15 percent rate their partners now pay.

Blackstone would be affected by the proposed tax code change, if it became law, but not for five years under the transition period written into the bill.

The comments from the Montana Democrat, who chairs the Senate Finance Committee, came as a handful of lawmakers voiced wide-ranging concerns about his bill and the Blackstone IPO.

INDUSTRY GIANT

Blackstone makes the bulk of its money through private equity investing, or buying and selling companies by borrowing most of the money.

Frothy debt markets, a steady economy and huge investor appetite has allowed private equity firms to experience their most favorable climate to date. In the first six months of this year, private equity firms did more than $400 billion worth of deals, triple the amount in the year ago period.

In its March prospectus, Blackstone reported 2006 net income of $2.27 billion and a doubling of revenue to $1.12 billion.

Blackstone has taken part in some of the largest leveraged buyouts ever, including the purchase of Chicago based Equity Office Properties Trust for $23 billion and the $17.6 billion buyout of Freescale Semiconductor. Blackstone also owns Michaels Stores and Pinnacle Foods, maker of Duncan Hines and Vlasic pickles brands.

Investor interest in the offering appeared to come mainly from hedge funds and from abroad, with several mutual fund investors saying that they are going to wait out the rush.

Hedge funds typically buy and sell securities in quick fashion, making both long and short bets. Mutual funds take longer-term positions.

"The last several years, they have experienced unprecedented liquidity in their markets and we are not convinced that is sustainable," said Benjamin Ram, a portfolio manager at mutual fund RS Investments.

Ram said another reason for not participating was that he did not expect to get the number of shares he wanted due to the demand.

Investors may be hoping for a repeat of an earlier 2007 IPO. Shares of Fortress Investment Group LLC, the first U.S.-listed private equity and hedge fund, rose 68 percent in its February debut. Shares of Fortress are trading roughly 40 percent higher than its $18.50 offering price.

"The real question is how far is everyone, internationally, willing to go to stretch that elastic band and buy this stock in the after market," said David Menlo, an IPO analyst IPOfinancial.com. "I think it's going to be a hard lesson for a lot of people who insist on doing that."

(Additional reporting by Muralikumar Anantharaman and Svea Herbst-Bayliss in Boston, Kevin Drawbaugh and Rachel Younglai in Washington, D.C., Dan Wilchins in New York)