Blackstone profit, portfolio value rises

By Megan Davies

NEW YORK (BestGrowthStock) – Private equity firm Blackstone Group (BX.N: ) on Thursday posted quarterly earnings that beat market forecasts, and said the value of its private equity and real estate portfolios rose, although the amount invested in new deals was steady.

The firm, which has investments in companies including Hilton Hotels and Freescale Semiconductor, said third-quarter economic net income, or ENI, rose to $339 million from $275 million a year earlier.

The value of the firm’s private equity investments rose 6 percent over the previous quarter and its real estate funds rose 19 percent, Blackstone said.

The amount of capital invested by the funds was little changed over the previous year, Chief Operating Officer Tony James said on a conference call.

While financing conditions have rebounded, making it easier to strike large leveraged buyouts, valuations are still too high in some cases, he said.

“It’s much harder to find things of attractive value,” James said. “There are some good companies being sold, but we just can’t get to the prices that are required.”

Money is instead being invested in “very high proprietary content,” James said, referring to deals that are created by Blackstone rather than bidding in auctions.

HIGH COMPETITION

Competition for deals has increased as some private equity firms, which did not invest too much immediately after the credit crisis, are nearing the end of the scheduled investment periods of their funds.

“In many cases, particularly for those firms that didn’t too much in 2008 and 2009 — which is most firms — they’re looking at the amount of capital they have to divest…” said James. “And I think there is probably some pressure coming from that.”

Blackstone recently struck a $4.50 a share deal to buy U.S. power company Dynegy Inc (DYN.N: ), but the transaction has come under fire from investor Carl Icahn, who has built a 10 percent stake in the power company and is arguing the price is too low. Seneca Capital, a hedge fund with 9.3 percent of Dynegy’s stock, has also argued the deal is too low.

“It seemed like it was a very out-of-favor company at the time,” said James, who added the premium Blackstone is offering was “huge” and he is not sure the deal will now happen.

“Now one of the shareholders that was actually selling at $2.50 right before our offer is saying that our offer of $4.50 is too low,” James said, adding he did not know how that shareholder could “sustain that logically or fairly”.

Blackstone’s private equity funds invested $700 million during the quarter, which amounts to about $3.2 billion for year, James said. That is similar to the funds deployed in 2008 and 2009.

While Blackstone has a number of portfolio companies in various stages of going public, James said that the IPO market is “choppy” for private-equity backed IPOs.

“It’s not an exceptionally robust environment for exits. To get an optimal price, it’s pretty early in the cycle,” James said.

Blackstone is in the midst of selling some portfolio investments, such as energy business Kosmos and Britain’s United Biscuits. The Wall Street Journal recently reported talks to sell United Biscuits to China’s Bright Food Group are near collapse.

James, however, said “notwithstanding some of the press reports that they remain very interested.”

OUTLOOK CLOUDY

Blackstone’s Chairman and Chief Executive Officer Stephen Schwarzman said the firm does not expect a double-dip in the U.S. economy, though the outlook remains somewhat cloudy.

Adjusted ENI was 30 cents per share, up from 25 cents a year ago and ahead of the average analyst forecast of 25 cents, according to Thomson Reuters I/B/E/S.

ENI strips out items such as noncash charges for vesting equity-based compensation and the amortization of intangible assets. It is the measure that private equity firms prefer to report and that analysts follow.

Fee-related earnings rose 19 percent compared with the same period last year to $113 million. Blackstone has fee-earning assets under management of $104.3 billion.

Blackstone expects to start investing its recently raised sixth buyout fund, totaling more than $13.5 billion, this quarter.

Blackstone’s shares closed down 21 cents at $13.26.

(Additional reporting by Jessica Hall in Philadelphia; editing by Maureen Bavdek, Ted Kerr and Andre Grenon)

Blackstone profit, portfolio value rises