NEW YORK (Reuters) - The surprise exclusion of Goldman Sachs Group (GS.N) and JPMorgan Chase (JPM.N) from the list of underwriters for Blackstone Group’s planned $4 billion IPO — one of the year’s most highly coveted deals — has left many on Wall Street scratching their heads.
After all, in addition to being top underwriters, Goldman and JPMorgan happen to be two of Blackstone’s biggest clients, routinely advising the private equity firm on multibillion dollar takeover deals or handling the debt sales which are crucial to its highly leveraged transactions.
Blackstone, which last year did more than $101.7 billion in deals, excluding acquired debt, more than any other buyout firm, filed on Thursday to take about 10 percent of itself public.
Bragging rights for the offering, expected to price in under three months on the New York Stock Exchange, go to Morgan Stanley (MS.N) and Citigroup (C.N), who were listed as the lead bookrunners. Merrill Lynch MER.N, Credit Suisse Group CSGN.VX, Lehman Brothers LEH.N and Deutsche Bank (DBKGn.DE)also won coveted spots in the deal.
Goldman, JPMorgan and Blackstone are declining to comment on why the two banks were left out. Morgan Stanley, Citigroup and Lehman also declined comment.
One possibility is that Goldman agreed to be an underwriter but disagreed with Blackstone over its hefty valuation, said Lawrence White, a professor of economics at New York University’s Stern School of Business.
Right now, the deal is expected to value the entire company at $40 billion. Blackstone last year earned $2.27 billion, according to its filing.
“The question is ‘How come?’ Is Blackstone unhappy? Did they get rubbed the wrong way? This sounds odd,” White said. “This is a big deal. The first of the major private equity guys going public.”
Other observers have speculated that Goldman may be loathe to price Blackstone above its own valuation, seeing as the two are growing more similar in appearance. Blackstone has an M&A advisory business, and manages a half dozen investment funds, including private equity and hedge funds.
Goldman and JPMorgan also could have recused themselves because they were working with a rival private equity client on a similar offering, some analysts said.
And then there have also been some conflicts between Blackstone and the two banks at various times. One instance involved Blackstone rebelling against Goldman’s bid to compete with it in some large deals.
Goldman’s private equity arm, Goldman Sachs Capital Partners, is expected to raise a $19-billion buyout fund, not far behind Blackstone’s bid to raise $20 billion in what would be the largest buyout fund over.
Erick Maronak, head of research for growth funds at Victory NewBridge, a firm managing $60 billion in assets, speculated that the banks who did get on the underwriter list all have big balance sheets they could commit for Blackstone deals.
“Goldman is rightly viewed as publicly traded hedge fund. They’re fishing in the same oceans,” said Erick Maronak, head of research for growth funds at Victory NewBridge, a firm managing $60 billion in assets.
“It’s very competitive and this will be a high profile deal. Whoever runs the books gets to crow about it,” Maronak said. “There aren’t too many deals where the negotiating powers are not in the hands of Goldman Sachs.”
As for JPMorgan, another close Blackstone client, some on Wall Street believe that friction between the two surfaced during Blackstone’s $23 billion takeover of U.S. office landlord Equity Office Properties Trust — at the time, the second-largest leveraged buyout ever.
JPMorgan was not involved in that deal, and later led a counter-offer by Vornado Realty Trust, which failed but led to Blackstone raising its bid. Sources say that it was Vornado that approached J.P. Morgan about a counter-bid.
“It could be the people at Blackstone are upset at JPMorgan or Goldman Sachs and therefore didn’t include them,” said veteran banking analyst Richard Bove of Punk Ziegel & Co. “It doesn’t have significance for Goldman longer term. They don’t win every deal, but they’re in most offerings.”