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Financial Times, May 16, 2007 article


Union in move to halt Blackstone IPO

By Francesco Guerrera and Ben White in New York
Published: May 16 2007 03:00 | Last updated: May 16 2007 03:00


America’s biggest union federation has called on US regulators to stop Blackstone’s $40bn landmark initial public offering. The move will raise the political heat on private equity and could complicate attempts by other buy-out groups to list.

The AFL-CIO, the 10m-strong labour group, has written to the Securities Exchange Commission arguing that Blackstone’s IPO falls foul of US laws and should be investigated.

The move is the first direct attack against a buy-out fund by US labour.

Private equity executives say the unions are fighting a political battle against the industry. They are confident that regulators will allow the IPO to proceed.

However, the AFL-CIO attack highlights the growing concerns among politicians and unions leaders over private equity funds and the vast wealth of their executives at a time of rising income inequality in the US.

The attack on the Blackstone IPO comes as Doug Lowenstein, head of the newly-created Private Equity Council lobby group, makes a first appearance on Capitol Hill on Wednesday to defend the industry against unions and other critics who say it destroys jobs while using its generous tax status massively to enrich a small group of executives.

In the letter, sent on Tuesday and seen by the Financial Times, the union says that the unique structure chosen by Blackstone’s senior executives to raise funds from stock markets while keeping a tight grip on the running of its business is an attempt “to evade the coverage” of the Investment Company Act of 1940.

In its March prospectus, Blackstone argued that its listed entity was a partnership exempt from the governance requirements of investment companies such as having a fiduciary duty to stock market investors and keeping a majority of independent directors on the board.

The AFL-CIO says Blackstone is an investment company and its corporate structure “serves no practical purpose aside from creating a mechanism for Blackstone Group to sell its shares to the public without being regulated by the Commission”.

Blackstone declined to comment because of SEC restrictions related to its IPO plans. The SEC also declined to comment.





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