Blackstone up 13 percent in NYSE debut

By Joseph A. Giannone and Lilla Zuill

NEW YORK (Reuters) - Blackstone Group LP (BX.N) units rose 13 percent in their first day of trading on Friday, as the first major U.S. private-equity firm went public and minted billions of dollars of new wealth for its founders.

Closely watched by Wall Street and Washington, the units shot up 23 percent to $38 in early trade. But they then slipped below an opening price of $36.45, indicating selling on concern over higher U.S. taxes for the industry or on doubts the ideal conditions for private equity of recent years would persist.

"The opening price was less than people had speculated," said Al Goldman, chief market strategist at brokerage A.G. Edwards. "Maybe people are concerned Congress is trying to raise taxes for this type of company ... People are wondering what's going on. Are the insiders selling because they think the party is about over?"

Blackstone's sale of 133.3 million units at $31 apiece, the top of its range, was about seven times oversubscribed, showing strong demand from investors eager for a stake in one of the world's most profitable and rapidly growing money managers.

The $4.13 billion offering on the New York Stock Exchange was the largest U.S. IPO in five years and the eighth-biggest by a U.S. company ever, excluding overallotments.

On its first day as a public company, interest stayed strong with more than 76 million shares changing hands.

"It has done remarkably well" even though it was a tough day for stock markets, said Scott Sweet, managing director for research firm IPOboutique.com. "It was a very large offering, and trading has been incredibly active."

The S&P 500 Index, a bellwether of U.S. stock activity, fell about 1.2 percent on Friday.

"This stock is the real thing. Private equity has generated a lot of hoopla on Wall Street," said NYSE floor broker Steven Grasso of Stuart Frankel & Co.

Blackstone ended the day at $35.06, giving it a market value of nearly $38 billion -- on par with military contractor Lockheed Martin or consumer bank Washington Mutual, and just shy of Lehman Brothers' $41 billion market capitalization.

If underwriters led by Morgan Stanley and Citigroup opt to issue 20 million more shares, the IPO will generate an extra $620 million, for a $4.75 billion total. Blackstone separately sold $3 billion of non-voting shares to China's government.

HISTORIC DEAL

The IPO ushers in a new era for an industry that has come to dominate financial markets worldwide by pursuing ever-larger takeovers and raising record amounts of capital. Last year private equity buyouts reached about a fourth of global merger and acquisition volume, versus just 5 percent a few years ago.

With investors hungry for high returns, Blackstone increased private equity, real estate and hedge fund assets under management to $88.4 billion, up an average 34 percent a year since 1995 and 41 percent a year since 2001. A firm with just 770 employees made $1.12 billion of revenue last year.

"For those people who have seen the phenomenal results of the Blackstone Group, it's an opportunity for them to invest in a proven private equity franchise," said Michael James, a senior trader at Wedbush Morgan in Los Angeles.