Thursday, November 15, 2007

Blackstone Group: Talking, Not Buying




I do think that the tax risk that we in particular face has been fully discounted in the stock price.

—Tony James, The Blackstone Group, President, COO


Companies that comment on their stock valuation generally run towards single-digit NASDAQ shooters, not NYSE-listed mega-caps—or, in the case of Blackstone Group, a company whose IPO at a total market value close to Lehman Brothers, which certainly marked the peaked of the Private Equity Bubble back in June, former mega-caps.

Which is why the Blackstone comments on its own stock valuation were so interesting.

Here is the context and the full quote from Mr. James, courtesy of the indispensible StreetEvents:

Just a word on taxes and Washington, DC, because I am sure I will get that question too. I don't think there has been any real change since we talked last quarter. The taxation of most publicly-traded partnerships and carried interest continues to be actively debated. There is no consensus that has emerged and it is really not predictable as to what ultimately will happen in the areas of particular interest to us, because there are powerful forces on both sides of this issue.


It is clear, I think, in general that taxes are going to go up and our goal remains just to see that we are treated consistently and fairly with other people. I do think that the tax risk that we in particular face has been fully discounted in the stock price [emphasis added].

How, precisely, would he or anybody else know exactly what has been discounted in the stock price of Blackstone?

More importantly, assuming he is correct, then why isn’t he buying?



Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice, nor is it a solicitation of business in any way. It is intended solely for the entertainment of the reader, and the author.

6 comments:

lexis said...

Well, because assuming he is correct, Blackstone is fairly valued, so why should he be buying?

Invictus said...

Taxing carried interest is a strange topic. And has only gotten stranger as the most influential proponent (Percy Walker) of it has been silenced by the SEC and IRS.

http://percywalker.com/

At the IPO of Blackstone, the value of each employee was something like $40 million. Even with the decline their per employee market value is astonishing. My guess is the stock is still overvalued, otherwise why the feeble attempt to create a floor for the stock?
However, Blackstone's earnings per employee were double Goldman Sachs' at the time of the IPO, revenue per employee - $2.8 million versus $1.4 million, respectively. Obviously the market views the metrics as unsustainable. Once again Blackstone picked the top of the market to cash in with themselves.

BlackLab said...

Or maybe it's because there are other issues aside from taxation that have not been discounted in the stock price.

Dale said...

How, precisely, would he or anybody else know exactly what has been discounted in the stock price of Blackstone?

Well, no one knows exactly, but one can hypothesize using the whole panoply of tools afforded to us through financial theory, experience, and inference. How do you value things?

I do think that the tax risk that we in particular face has been fully discounted in the stock price

I would think he is saying the stock is overpriced here, not underpriced.

jgoodie said...

Monday’s comments on the subprime crisis by The Blackstone Group President and CEO Hamilton James makes one wonder how much money the firm lost because of bad mortgages. His comments also seemed like a warning to Wall Street to brace itself for a long period of bad news. The NewsVisual article http://www.newsvisual.com/newsvisual/2007/11/post.html illustrates that this company has a very experienced Board of Directors, and thus James’s comments about the severity of the subprime mortgage crisis must be taken seriously.

The Inscrutable Chicken said...

Don't forget that although Mr James is an uber-wealthy master of the universe with connections that Dubya would envy, he's only been the boss of a listed company for 4 1/2 months.

Nobody thought to tell him that he shouldn't comment on the share price and, now that he's done it, no-one's going to tell him he can't do it again.