Bary Blasts Blackstone

Barron's columist Andrew Bary, who is among the best of their bunch, blasted Blackstone Group in the latest edition of the weekly.

Clearly Bary is no fan of the alternative asset managers, at least given the current valuations, and the piece was similar in vein to the scathing review he gave Och-Ziff Capital Management in the wake of their IPO.

Is Blackstone yesterday's news?

The credit market meltdown has made leveraged buyout deals difficult to complete because they are dependent upon the buyer's ability to finance the deal with heaps of debt.

Meanwhile, cash-rich sovereign funds from the Middle East and Asia have pushed aside the private equity players, including Blackstone, whose shares closed on Friday at $18.72 on the New York Stock Exchange, down from the $31 price at its initial public offering in June. Reuters

Last year Blackstone paid a peak multiple for peak earnings in the deal for Hilton, and Bary is highlights the deals unfortunate timing. At the time I asked if it was a pending train wreck:

Hilton Hotels might offer less wiggle room. The state of their balance sheet would seem to limit the financial flexibility. What is the kicker here? Far be it from us to question the acumen of Tony James, but at least one pro is questioning their purchase, and the timing of the deal: Let’s see… paying up—and leveraging—for a highly cyclical business, five years into an industry upturn. Doesn’t sound like a great trade to me. How Will Blackstone Check Out of Hilton?

But Bary highlighted the firm's "clawback" feature, which might force Blackstone to write down investments and refund fees they have already collected.

Blackstone’s news flow had been decidedly dour, and the firm has reneged on many deals it entered into last year. But wiggling their way out of deals might save them billions of dollars. The Alliance Data Systems deal has been a nightmare for all those involved and the Freescale Semiconductor buyout has all the hallmarks of a disaster given the straits Motorola is in. Too, Sidney Harman probably regrets ever sitting down at the table with them. And what about FGIC?

Tony James’ spin control is laughable, but he has got to take a shot. Last week he claimed “There are deals that fall apart for all kinds of reasons,” James said at a private equity conference in New York organized by Dow Jones. “You can’t get the shareholder vote ... you can’t get regulatory approval—which is a problem with Alliance Data—sometimes you have higher bids ...But, historically, there’s no fundamental difference. Deals have always fallen apart in the M&A arena and buyers and sellers go into a deal knowing that ... So no one’s being misled about this. It’s a risk you take ...”and claiming, in regard to Alliance Data “If we could find a way to do it, we would do it. It’s a great company.”

Still, the stock of Blackstone is shaking off the latest assault today, and perhaps Barron’s price target of $15 is too pessimistic. I had suggested on January 10th that the worst might be over for the stock:

All good things come to an end, the trade betting against Schwarzman might finally have run its course. No worries, you can buy the stock without actually liking the guy. Blackstone Bounces

And while some of the sharpest people on Wall Street work at Blackstone, for now their stock is Just Another Pig.

Blackstone clawback could be black eye - Barrons’
Reuters

Black Eye for Blackstone?
Barron’s
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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