Friday, June 15, 2007

Tax Boost for PE firms going public

Federal lawmakers on the Senate Finance committee launched a bipartisan bill against the blooming Private Equity market on the eve of the much awaited IPO of Blackstone Group. Historically, when hedge funds and buyout firms which are structured as private partnerships, become publicly traded, they enjoy the benefits of behaving like a corporation but pay taxes at the lower rates of partnerships. This bill introduced in the Senate, changes this agreement by raising the tax rates for private equity firms going public.

"It's unfair to allow a publicly traded company to act like a corporation but not pay corporate tax, contrary to the intent of the tax code."

People involved in the Blackstone IPO said that this bill could hit Blackstone's $40 billion valuation by as much as 20% !! Boy, that is huge and this also means that they may not be able to proceed with the IPO as planned and may have to defer the offering. This bill is definitely a blow to these hot buyout firms like Blackstone and KKR.

Blackstone has been amongst the most prominent PE firm with their audacious deals that range from their $39 billion takeover of the nation's largest ownwr of office buildings namely Equity Office Properties to Freescale Semiconductor. As one would expect, they are already indulging in some extensive lobbying to get a headstart against their rival firms intending to go public.

I think this is a good move and the bill should get passed both in the House and the Senate. It is a totally unfair rainbow that the PE firms are currently enjoying when they go public, unfair against the corporations and other startups going public.....All should be treated on par and taxed at the corporate rates. But will Blackstone going public escape this? Or has the bill been introduced at the right moment to stop it from going public?



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