Friday, June 15, 2007

Congress Puts a Chill in Blackstone’s IPO

WSJ Deal Journal, June 14, 2007, 4:52 pm

Congress has finally lowered the hammer on the private-equity industry. And it’s hitting Blackstone Group in the head.
Sens. Max Baucus and Charles Grassley, the ranking Democrat and Republican on the Finance Committee, introduced a bill today that would eliminate favorable tax treatment for the private-equity firm, which is planning to go public later this month.
In short, the bill says the fees Blackstone collects from its investors should be taxed like regular corporate income, and not at the more favorable “partnership” level that Blackstone had planned.
The bill, which could be passed as soon as a few weeks from now if it gets added on to the budget bills the Congress is currently working on, could put a big chill on Blackstone’s IPO and other such offerings waiting in the wings.
Deal Journal has also been told by people close to the issue that Baucus and Grassley will introduce a bill in July to make sure that carried interest profits pocketed by private equity firms are taxed as regular income, at as much as 35%, and not the reduced capital gains rate of 15%.
If the bill passes, Grassley and Baucus made sure it will become effective retroactively — back to today, the day it was introduced. This is very signfiicnat because it ensures that Blackstone will have to comply even if it goes public before the bill passes.

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