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Blackstone Delivers at Its Stock Market Debut

LINDA WERTHEIMER, host:

Blackstone Group is an investment giant that has made billions by taking companies private. Now in a bit of Wall Street irony, Blackstone has gone public. Its initial public offering of stock raised more than $4 billion along with some concerns among lawmakers here in Washington.

Joining us from our New York bureau to unravel the intricacies of the Blackstone IPO is our friend from the business world, Joe Nocera.

Welcome, Joe.

Mr. JOE NOCERA (Columnist, New York Times): Thanks for having me, Linda.

WERTHEIMER: So why is the Blackstone IPO such a big deal on Wall Street?

Mr. NOCERA: Well, there's two reasons really. The first is that every once in a while, a company comes down the pike that really exemplifies its moment. Google is a great example of that, you know, that stock just exploded when it went public.

And Blackstone is like that. We live in an age when private equity is buying up everything. These firms, not just Blackstone, but KKR and the Carlisle Group and Texas Pacific - there 's nothing they don't seem to be able to buy. And company after company is going private with these buyouts.

And so Blackstone itself has become a curiosity. People wonder about how much money it's making. And when Anatsu(ph) was going public, there was an enormous public interest, which has unleashed basically a very successful IPO.

WERTHEIMER: The initial offering price was $31 a share, but in the first day of trading, they went up considerably over that.

Mr. NOCERA: Well, not really considerably. They went up 15 percent, 18 percent. They were fluctuated around that range pretty much all day. It is a financial company. There is a lot of risk involved, people seemed to understand that, but there also has a lot of pent-up demands for the stock.

WERTHEIMER: Now, the IPO has also drawn a great deal of attention in Congress, which is looking into how the partners of private equity firms like Blackstone are compensated. What's the concern there?

Mr. NOCERA: In a word, Linda? Taxes.

WERTHEIMER: Aha.

Mr. NOCERA: Now, you know, this is what happens when you have a group of people or an institution that has been very quiet and low key, and then suddenly it becomes sort of public, you know, where all these guys make immense sums of money. Even before the IPO, they were billionaires.

And so people start to look at - Congress starts to look at how are they making their money. And they start to realize that they're not paying corporate taxes. They're paying capital gains taxes on much of the money they make because of complications in the tax codes. And so what's really happened is that this IPO and the current boom in private equity has caused Congress to take another look at the tax structures of these things and to come to the conclusion that they're only paying 15 percent in capital gains tax for what amounts to their income, whereas corporations have to pay, you know, 30, 35 percent. And that's why, you have seen, actually just on Friday, a group of 15 Democrats submitted a bill that would change the tax status of hedge funds and private equity funds.

So there's a lot of private equity funds that aren't all that happy with Steve Schwarzman, the chief executive of the Blackstone, because they sort of think that his decision to go public has caused this new scrutiny on the way they make their money.

WERTHEIMER: This IPO was a very big payday for Blackstone's co-founder, the chief executive Stephen Schwarzman.

Mr. NOCERA: What do you mean? What do you mean? He's only going to be worth $7 billion after this. You call that a big payday, Linda?

(Soundbite of laughter)

WERTHEIMER: Seven whole Bs, huh?

Mr. NOCERA: Yeah, that's right.

WERTHEIMER: Well now, I've realized I'm mixing apples and oranges to some extent here. But the notion that he should pay 15 percent on his $7 billion is kind of an extraordinary notion to those of us who pay a much higher rates of income tax.

Mr. NOCERA: They would basically argue that they are a partnership, and all partnerships have different tax structures than a corporate tax structure. Do you buy it? Do I buy it? Not necessarily, but this will get fought out. Believe me, they've already hired first-rate lobbyists, you know.

WERTHEIMER: Made a few contributions here and there.

Mr. NOCERA: That's right. Well, Blackstone already has a deal where if a bill gets passed, they get a kind of a five-year exemption before it kicks in with them. That's so much lobbying they did before all of these happened.

WERTHEIMER: Joe Nocera is a columnist for the New York Times. Joe, thank you very much.

Mr. NOCERA: Thanks for having me, Linda. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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