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Two House Democrats Seek IPO Delay

Two senior House Democrats on Thursday added their voices to a chorus of congressional concern over Blackstone Group LP's imminent initial public offering of stock, in an unsuccessful eleventh-hour bid to get federal securities regulators to delay the IPO.
/ Source: The Associated Press

Two senior House Democrats on Thursday added their voices to a chorus of congressional concern over Blackstone Group LP's imminent initial public offering of stock, in an unsuccessful eleventh-hour bid to get federal securities regulators to delay the IPO.

Once the offering was priced Thursday evening, at $31 a share valuing the firm at some $33 billion, it was apparent that it had received regulatory clearance from the Securities and Exchange Commission.

The latest request to the SEC to delay the offering was lodged by Reps. Dennis Kucinich of Ohio and Henry Waxman of California even as it received overwhelming demand from investors seeking a piece of Friday's $4 billion IPO.

Both prominent liberal Democrats, Waxman is chairman of the House Committee on Oversight and Government Reform, and Kucinich _ also a longshot presidential candidate _ heads the panel's domestic policy subcommittee.

The Blackstone IPO "may present potential investors and the public with new and undisclosed risks, while stripping them of necessary protections," they said in a letter to SEC Chairman Christopher Cox. They asked that the agency delay the offering until Congress can hold hearings on the issue.

"While exposing unsophisticated investors to new risks, the Blackstone LP IPO would also apparently deprive them of control over the management of the funds," Kucinich and Waxman said. "Small investors, in particular, would benefit from more consideration by the Securities and Exchange Commission and Congress of the proposed IPO."

A number of key lawmakers have expressed concern to the SEC in recent days over the Blackstone IPO, saying its first-of-a-kind character could have far-reaching effects on the financial markets and that it raises significant tax questions.

The SEC has been reviewing Blackstone's IPO proposal for several months. Agency spokesman John Nester said Thursday, referring to its decision making process on the proposal, "Congress has created the world's strongest investor protection laws, which the (SEC) has rigorously applied."

In the SEC's review, a securities offering may only be rejected or delayed if the documents contain "material misstatements or omissions," Nester noted.

On Wednesday, Sen. Jim Webb, D-Va., raised national-security concerns to Cox, Treasury Secretary Henry Paulson and Homeland Security Secretary Michael Chertoff over China's planned $3 billion investment in Blackstone.

He noted that Blackstone's holdings include companies that provide software used by the U.S. military and in satellite technology.

Legislation proposed last week by the leaders of the tax-writing Senate Finance Committee would greatly increase the tax burden of private-equity firms like Blackstone and hedge funds that go public _ closing a perceived loophole that gives asset-managing partnerships that tap the public markets a big tax advantage over corporations.

The bill's authors, finance panel chairman Sen. Max Baucus, D-Mont., and its senior Republican, Sen. Charles Grassley of Iowa, have written to Cox and Paulson, saying that the Blackstone IPO raises serious tax questions that must be resolved quickly.

After a week of public silence, the new lobbying organization for the private equity industry announced its opposition to the legislation on Thursday. "We have concluded that the Baucus-Grassley legislation, by significantly raising taxes on U.S. private equity firms that seek to offer shares to the public, will discourage them from tapping into the most robust capital market in the world _ the United States," said Douglas Lowenstein, president of the Private Equity Council.

"That means that U.S. firms will be put at a competitive disadvantage to overseas firms that can manage investment funds at a lower overall tax cost," he said.

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On the Net:

Securities and Exchange Commission: http://www.sec.gov

Blackstone Group LP: http://www.blackstone.com