The Blackstone Group’s pending public offering of roughly 12 percent of its management company has the potential to raise up to $4.75 billion (€3.5 billion), and is expected to create more than $2.3 billion for its founders.
Blackstone chairman Pete Peterson will receive $1.9 billion in the offering, and retain a 4 percent stake in the firm, while chief executive Steve Schwarzman will receive $449 million and retain a nearly 24 percent stake in the firm, according to a filing with the Securities and Exchange Commission. If the IPO prices at the expected $30 per unit (its range is $29 to $31), Schwarzman’s stake is worth nearly $8 billion.
Should the offering’s underwriters – including Deutsche Bank, Morgan Stanley, Lehman Brothers, Citigroup, and Merrill Lynch – decide to float an additional 20 million units, Schwarzman will receive $677.2 million in the offering.
Schwarzman and Peterson aren’t the only top executives set to profit from the public float: Blackstone president and COO Hamilton James is to receive approximately $147.9 million in the offering (or $188.5 million if the underwriters purchase additional common units), while vice chairman J. Tomilson Hill will receive $22.1 million and chief financial officer Michael Puglisi will net $13.4 million.
The filing also revealed that Blackstone’s top brass had handsome paydays last year: Schwarzman took home $398.3 million in cash distributions, Peterson netted $212.9 million, James received $97.3 million, Hill scored $45.6 million and Puglisi received $17.4 million.
“Our named executive officers have not historically received any salary or bonus and have instead received only distributions in respect of their ownership interests in our businesses,” Blackstone said in the filing. “Therefore, 100 percent of the distributions received by our executive officers has been performance-based, because all of their distributions have been calculated based on their respective percentage interests in the profits of our firm and their allocated shares of the carried interest or incentive fees payable in respect of our investment funds.”
Following the IPO, Schwarzman will “receive no compensation other than a $350,000 salary, but will own a significant portion of the carried interest earned from our carry funds”, the filing said.
Blackstone does, however, intend to initiate “founding member agreements” with Schwarzman and Peterson. Each agreement mandates that the executive retain his current post while with the firm, and requires Schwarzman to provide six months’ notice of his intent to leave the firm, while Peterson must provide 90 days’ notice and is expected to retire on or before 31 December 2008.
Following their retirement, the founders will receive perks including the ability to retain their current office for three years, be provided a car and driver for three years, be given an office for up to 10 years, and receive health benefits until their death.
“Additionally,” the filing said, “before his retirement and during the 10 year period thereafter, our founders and foundations they establish may continue to invest in our investment funds on a basis generally consistent with that of other partners.”