Blackstone's acquisition of a 4.5% stake in Deutsche Telekom got a lot of Going Private Headlines over the last several months, not least because of the highly atypical nature of the deal (a minority investment in a public firm by a generally control-obsessed buyout firm). I read with interest, therefore, a self-proclamed "dilligent fan"'s email missive pointing out that the equity stake Blackstone had taken in the deal, and indeed the investment at large, has been pounded. Bloomberg reports yesterday that:
Blackstone Group LP's stake in Deutsche Telekom AG has dropped by about 540 million euros ($689 million) in value after shares of Germany's former phone monopoly lost almost a quarter of their value in four months.
The New York-based buyout firm bought 191.7 million Deutsche Telekom shares for 14 euros apiece from KfW Group, the state bank said in April. At the time that stake was worth 2.68 billion euros. Shares of Europe's largest phone company have since dropped to 11.17 euros, cutting the value of Blackstone's 4.5 percent stake to 2.14 billion euros.
The stock sagged another 4% today, I'm told.
Blackstone's self-imposed two year lock-up prevents them from exiting, though I'm not certain why they would at this point in any event. If they truly believe in their investment premise, and my speculation about their motives is anything near correct, now would be the time to start acquiring a larger stake.
Alternatively, perhaps rumors of their interest in a larger stake were buoying the shares, i.e. the next stage of the acquisition might have been already priced in, and the failure of such a plan to materialize with anything like speed is now weighing them down.
Certainly, given the size of the firm it would be a difficult deal to pull off without a club-like setup. Will other firms be confident enough in Blackstone's investment theory to join the party in the face of sagging shares? More than ever, perhaps, at this new price if the balance sheet for DT looks as good to them as it sounded to Blackstone. Still, one of the purposes of buyout funds is to structure for the long term. If DT's assets are fundamentally sound and this is a temporary dip then it is an opportunity.
It will be interesting to see how one of the largest buyout firms responds to this very public short-term setback. And this, in turn, highlights one of the problems with PIPE deals by private equity firms- they aren't private. Are large buyout firms prepared to deal with foreign investor relations issues? Charges that they are locusts? Plagues? A forward looking career consultant might suggest there will be a growing need for public and investor relations experts with finance backgrounds in large private equity firms as these low hanging fruit becomes harder to find, these sorts of deals become more common and this issue grows to a more significant one.
