B-Day: The Blackstone Group jumped as much as 45 percent this morning in its first day as a publicly held investment company (or partnership or private equity firm or whatever it is they're calling it for tax purposes). The stock reached $45 a share from its offering price of $31; last I checked settled back to around $40. The offering was many times oversubscribed, which explains why so many investors are wanting in. Proceeds will be used to expand Blackstone's buyout and asset-management units, and pay founders Stephen Schwarzman and Peter G. Peterson a combined $2.33 billion. They started the company in 1985 with $400,000. Wowser. Bloomberg
Is Tribune deal in trouble?: The concern involves trying to finance the very complicated $8.2 billion deal to take the Chicago-based media company (and parent of the LAT) private. With the company’s May revenues falling 11.1 percent, markets aren't exactly champing at the bit to get a piece of this massive debt load. (Lenders are always available for a price, but the price might be extremely steep and eat into the metrics of the original deal.) It's too early to press the panic button, but later this year Tribune still has to close the second half of the financing, which involves syndicating an additional $4.2 billion in debt. From the Chicago Tribune:
While Tribune has firm commitments from four large banks to fund the deal, the transaction is contingent on getting various regulatory approvals, including waivers of Federal Communications Commission rules regarding media cross-ownership. The banks can also back away under certain conditions if Tribune results truly fall apart. Several investors in Tribune stock noted equity investors and arbitrageurs are weighing the stock's valuation if the deal goes through versus the value if it fails. At the current price, one said, the market is betting that there's only a 60 percent chance the deal will close and that the stock will sink further if it doesn't.
Summer movie pirates: It's not just Michael Moore's "Sicko" that's winding up online - a pirated version of Disney's big-budget "Ratatouille" is making the rounds (it opens next week). Hollywood appeared to have contained the piracy problem for a while, but the studio's efforts to build up buzz with all those prescreenings may be opening them up to greater risk (Disney held more than 800 "sneak preview" screenings of "Ratatouille" last weekend). Film pirates are also just getting wiser. WSJ
More on Paris interview: There's quite a bit of confusion on whether and how much she'll be getting for her post-prison chats and photo shoots. Yesterday the NY Post reported that NBC had the "get" by agreeing to shell out close to $1 million - much to the irritation of ABC's Barbara Walters, who has been trying to ingratiate herself with the Hilton family (what an assignment!). The NYT reports this morning that ABC was willing to pony up 100 grand, which Hilton's father Rick said wasn't "even in the same galaxy" as the other offer they got. But last night, crisis manager Mike Sitrick (yes, he’s in this one, too) released a statement that Hilton is not being paid for any TV interview. Meanwhile, today's Post reports that Hilton has cut a $300,000 deal with Getty Images to have her pictures in People next Friday.
Can lower gas prices continue? Probably not, especially with the price of oil nearing $70 a barrel - and lots of talk about it reaching $80 later this year. It's the usual culprit - heavy demand by China and other high-growth regions of the world. So enjoy this little stretch of falling pump prices while you can. The Auto Club's latest survey shows that the average price of self-serve regular gasoline in the Los Angeles-Long Beach area is $3.191, which is 6.4 cents cheaper than last week, 26 cents below last month, and 3 cents under last year. A number of stations are now selling gas below $3.
Cheesecake falls flat: Stock of the Calabasas Hills-based restaurant chain seemed to be stabilizing this morning after the company's disappointing second-quarter forecast. Bear Stearns analyst Joseph Buckley says the numbers imply earnings per share of 31 cents, which is lower than his estimate of 34 cents. Cheesecake cited industry-wide softness and higher dairy costs, but there may be more to it. Here's Evelyn Rusli's take in Forbes' Market Scan:
For a long time, the Cheesecake Factory was considered the darling of the casual dining market. The company's namesake chain and Grand Lux Cafe, a slightly more upscale line, are highly profitable, with average sales per square foot rate at $935--63.4% higher than the rest of the casual dining sector. However, analysts wonder whether overall weakness in casual dining, largely driven by uncomfortably high gas prices, will reduce foot traffic at Cheesecake restaurants going forward. In the wake of Wednesday's disappointing announcements, a handful of analysts downgraded the stock or chipped away at their price targets.
Now that the Cheesecake Factory has dotted the U.S. with its franchises, there is concern that it has limited room to grow. While the Grand Lux Cafe is a new concept with only a few open restaurants, there is the risk of cannibalization. Its price points are only slightly higher and it retains many of the original's attributes.
Another mortgage victim: This time it's OC brokerage Brookstreet Securities, which according to the LAT has started shutting down operations because of losses on mortgage-backed securities. Firm founder Stanley Brooks said in an email that Brookstreet's net worth has fallen from $11 million at the end of May to a negative $2.1 million. One Brookstreet broker told the paper that the problems stem from a special website that had been set up for wealthy investors.
The broker said the site allowed investors to purchase collateralized mortgage obligations — bonds backed by various flows of payments on pools of mortgages — with as little as 10% down and the other 90% borrowed, rather than the 50% down that is typically required on such margin accounts. A combination of rising longer-term interest rates and defaults on sub-prime mortgages caused the mortgage bonds to lose value — losses that were greatly magnified because of the heavy borrowing that funded the purchases, the broker said. In some cases this would more than wipe out an investor's entire position overnight, putting the burden on Brookstreet to make up any amounts owed to the National Financial unit of Fidelity Investments, which held the accounts. In the end, National Financial began selling the assets of investors as their accounts declined, leaving them, like Brookstreet itself, with huge losses, the broker said.