Blackstone and LLOG Exploration to invest $1.2 billion

NEW YORK, Tue Nov 13, 2012 – Private equity firm Blackstone Group LP and LLOG Exploration Co. LLC will jointly invest $1.2 billion to strengthen the offshore oil producer’s operations in Mexico, the two firms said on Tuesday.

Blackstone will invest from its two private equity funds, which aggregate over $19.3 billion of committed capital, including Blackstone Energy Partners.

The partnership will boost LLOG’s asset base in the Gulf of Mexico and appraisal of about 110 offshore leases.

“LLOG is a highly efficient deepwater operator, with the history and ability to accelerate development, minimizing the timeframe to first production and significantly increasing project returns,” said Angelo Acconcia, managing director of Blackstone Energy Partners.

Blackstone third-quarter profit up on strong fund performance

NEW YORK, Thu Oct 18, 2012 – Blackstone Group LP, the largest publicly listed alternative asset manager, said on Thursday third-quarter were its third best since going public in 2007 as its funds appreciated in value and performance fees soared.

Blackstone reported that third-quarter economic net income, a measure of its profitability using the mark-to-market valuation of its portfolio, rose to 55 cents per share from a loss of 34 cents per share a year earlier.

Blackstone, which has investments in The Weather Channel, Pinnacle Foods and SeaWorld Parks & Entertainment, said distributable earnings, reflecting actual cash available to pay dividends, rose to $189.6 million from $125.7 million a year ago.

Assets under management totaled $205 billion at the end of September, up 30 percent from a year earlier.

Blackstone declared a quarterly distribution of 10 cents per common unit.

Blackstone private equity firm posts loss, hit by market decline

NEW YORK ― Blackstone Group posted a worse-than-expected quarterly loss on Thursday as market declines hit the value of the private equity firm’s investments, forcing it to book a huge accounting loss.

But Blackstone said assets under management on which it earns management fees increased during the quarter, operating performance of its portfolio companies and properties was strong, and U.S. and European markets had rebounded since Sept. 30.

The company said it had record $33.4 billion of “dry powder,” or capital available to invest, up from $31.4 billion in the second quarter, and expected its latest real estate fund to raise more than $10 billion.

Blackstone invested $4.8 billion in total capital — its highest level of investment activity since 2007 — during the quarter, capitalizing on market dislocations.

“It’s been a quarter of contrasts,” President Tony James said during a conference call with reporters. “We had a very favorable and active environment for new investments.”

Blackstone, for example, bought a 44 percent stake in Leica Camera on Wednesday, when other bidders for the German company dropped out, James said.

The level of deal activity for private equity firms, however, remains muted compared with the pre-crisis years as buying and selling assets has become difficult as markets gyrate and debt financing markets remain tough.

Private equity firms have done $239.8 billion worth of deals so far this year, compared with $730.3 billion over the same period in 2007, according to Thomson Reuters data.

Blackstone’s economic net loss, which measures operating performance, was $342 million, compared with a profit of $339 million a year earlier. Adjusted ENI was a loss of 31 cents per share, lagging analysts’ average estimate of a loss of 5 cents, according to Thomson Reuters I/B/E/S.

Blackstone saw unrealized performance fees — its share in profits after funds hit a typically 8 percent return hurdle — fall to negative $465.2 million.

Performance fees booked over the life of a fund can swing from one quarter to the next as the firm marks its portfolio to market every quarter. It books gains when the investments rise and losses when they fall, so overall it gets a 20 percent share of the profits at the end.

The results signal a tough third quarter for the other major publicly traded private equity firms — KKR & Co and Apollo Global Management — which are expected to report results in the coming weeks.

Fee-earning assets under management rose to a record $132.9 billion, boosting base management fees 20 percent to $322.4 million.

Blackstone’s James said the firm raised $4 billion in the first closing of its global real estate fund, BREP VII. The firm also closed on $2 billion for its next mezzanine fund and is on track to exceed $3.5 billion.

“Our limited partner investors affirmed their confidence in our world-leading businesses and increased their share of funds with us,” Chief Executive Stephen Schwarzman said in a statement. “The third quarter presented extremely challenging market conditions, dominated by risk aversion and volatility.”

Its shares were down 0.6 percent at $13.16 during late morning trading on the New York Stock Exchange.

Blackstone president James says co-investment amounts to ‘massive’ fee cut

NEW YORK ― Blackstone Group LP President Tony James said the trend of private equity fund investors making direct investments alongside financial sponsors amounts to a “massive fee cut for the private equity industry.”

James, speaking at the Dow Jones Private Equity Analyst conference in New York, said so-called co-investment by limited partners in private equity funds is “absolutely everywhere now,” noting that many large investors want to have at least a dollar of co-investment for each dollar they invest in a fund.

Because co-investors don’t have private equity fees stripped from their profits, they reap better returns, which puts additional pressure on the private equity funds.

“If it’s primarily a co-invest deal, you can bid a lot more for the company and get lower returns,” James said.

He said the investments have meant that there is more capital chasing the same deals, less pricing discipline in auctions and lower fees for private equity firms.

Many Canadian pension funds and sovereign wealth funds have been active as co-investors in recent years.

In recent months, for instance, private equity firm Apax Partners and two leading Canadian pension funds bid $5 billion for medical device maker Kinetic Concepts Inc.

Lawsuit against Blackstone could test leveraged buyout defense

WILMINGTON, Del. ― An $8.4 billion lawsuit brought last week against Blackstone LP by creditors of the bankrupt Extended Stay hotel chain ranks as one of the largest ever filed over a failed leveraged buyout.

It could also take its direction from one of the smallest ever — the recent, and otherwise forgotten bankruptcy of a New York restaurant that sold for just $1.1 million.

Essentially, a trust representing creditors of Extended Stay accused Blackstone and others of arranging an overpriced sale of the hotel chain to private equity investor David Lichtenstein with an allegedly conflicted Citigroup Inc. in between.

The lawsuit accuses Blackstone and other parties of lining their pockets at the expense of the hotel chain and its creditors, who suffered in the bankruptcy two years later.

That much is pretty standard fare for so-called fraudulent transfer cases, which often follow in the wake of failed leveraged buyouts.

Blackstone has said the lawsuit was without merit and Citigroup declined to comment.

The lawsuit, in Manhattan bankruptcy court, follows a recent decision in the district that could undermine the use of the so-called “settlement payment defense” to shield shareholders who sold into a buyout that went bust.

“It’s actually become much harder to litigate LBOs because of the development of the settlement payment defense,” said Stephen Lubben, a professor at Seton Hall Law School. “If the payments went through a financial institution, it’s much harder to unwind them.”

That may have changed, however, because of a ruling arising from a tiny failed leveraged buyout involving MacMenamin’s Grill of the New York City suburb of New Rochelle.

Owners of the restaurant agreed to sell their shares to the restaurant in 2007 for a total $1.1 million — a leveraged buyout so small that it was done with a Small Business Administration loan.

A year later the restaurant went bankrupt.

When a trustee for creditors sued the shareholders, they cited the settlement payment defense. Judge Robert Drain of the Southern District of New York rejected that, in part because the transaction did not involve publicly traded stock ― just as in the Extended Stay sale.

Martha Stewart Living hires Blackstone advisers; shares soar

NEW YORK ― Martha Stewart Living Omnimedia has hired Blackstone Advisory Partners, signaling it could strike a partnership or sell a stake in the company and sending shares up more than 30 percent.

At the same time, the company’s founder, Martha Stewart, announced Wednesday that she expected to rejoin the board of directors in the third quarter.

The company, known for its flagship magazine and brands, said it hired Blackstone after having been approached by other parties interested in becoming a partner or investing in it.

But it cautioned, “there is no assurance that the exploration of strategic partnerships and other opportunities will result in a partnership or transaction.”

A source familiar with the situation said there has not been an offer made for the entire company. The source added that while founder and controlling stockholder Stewart would prefer a transaction other than an outright sale, she will consider all options.

The company’s shares were up 31.3 percent at $4.95 in late morning trading on the New York Stock Exchange.

Once a company whose stock traded around $30 a share, Martha Stewart Living has struggled to draw advertising dollars, turned over top management and laid off staff over the last several years. The company currently has a stock market value of just over $200 million.

Stewart’s legal troubles ― she served a prison sentence after being convicted in 2004 of lying to investigators about a stock sale ― have also created headaches for the company. Stewart founded the company in 1997, but a settlement with securities regulators barred her from serving as a director or top executive until August 2011.

While Stewart is planning to return as a board member, the company also announced that Lisa Gersh, a co-founder of Oxygen Media, would be joining the company to run day-to-day business as chief operating officer. She is expected to assume the role of chief executive within 12 to 20 months, the company said, filling a vacancy.

Gersh will be charged with overseeing the company’s three main divisions: publishing, television and merchandising, where it has deals with Home Depot, Macy’s and Kmart, among others. Annual sales from all three divisions have steadily declined since 2008.