Financial Alchemy Continues as Blackstone Uses Stock to Fund…Hedge Fund Purchase for More Credit Deals
Blackstone's stock had plunged by over 40% since its 2007 IPO, but the advantages of going public became evident yet again when it used some USD 300 million in shares to help fund the January 10 purchase of hedge fund GSO Capital Partners for $930 million. Following closure of the deal, Blackstone head Schwarzman declared “I think now is a fantastic time to be growing this business globally.”
The business is debt, and there's never been so much of it. The mega buyouts are still waiting for the banks to move unsold LBO debt off their books, but Blackstone reported an 88% increase in hedge fund revenues for its third quarter compared with the previous year. GSO, with some 10 billion dollars under management, specializes in credit market operations, including…leveraged buyouts. “Combining GSO’s operations with our strong fixed-income team gives us critical mass,” said Schwarzman. So Blackstone is making good on its vow to use Blackstone stock as "currency" to finance acquisitions. At the same time as it announced the GSO deal, Blackstone said that it will be buying back some USD 500 million of its own stock.
Blackstone's purchase of GSO more than doubles its available cash for buying up debt, including LBO debt (see Locusts into Vultures posted on this site on October 1, 2007).