Friday, September 15, 2023

BX Joins S&P 500 Index

S&P 500 index holders saw the planned addition of Blackstone (BX), a giant private equity underwriter (PEU).  Those indirect holders have no say in the company's board of directors.  

BX's most recent 10-K states:

Because the Series II Preferred Stockholder holds more than 50% of the voting power for the election of directors, we are a “controlled company” and fall within exceptions from certain corporate governance and other requirements of the rules of the New York Stock Exchange. Pursuant to these exceptions, controlled companies may elect not to comply with certain corporate governance requirements of the New York Stock Exchange, including the requirements (a) that a majority of our board of directors consist of independent directors, (b) that we have a nominating and corporate governance committee that is composed entirely of independent directors, (c) that we have a compensation committee that is composed entirely of independent directors, and (d) that the compensation committee be required to consider certain independence factors when engaging compensation consultants, legal counsel and other committee advisers. While we currently have a majority independent board of directors, we have elected to avail ourselves of the other exceptions. Accordingly, our common stockholders generally do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

And who might these preferred stockholders be?

Blackstone Group Management L.L.C., an entity owned by senior managing directors of Blackstone and controlled by Mr. (Stephen) Schwarzman, is the sole holder of the Series II Preferred stock. As a result, conflicts of interest may arise among the Series II Preferred Stockholder, on the one hand, and us and our holders of our common stock, on the other hand. The Series II Preferred Stockholder has the ability to influence our business and affairs through its ownership of Series II Preferred stock, the Series II Preferred Stockholder’s general ability to appoint our board of directors, and provisions under our certificate of incorporation requiring Series II Preferred Stockholder approval for certain corporate actions (in addition to approval by our board of directors). If the holders of our common stock are dissatisfied with the performance of our board of directors, they have no ability to remove any of our directors, with or without cause. 

Further, through its ability to elect our board of directors, the Series II Preferred Stockholder has the ability to indirectly influence the determination of the amount and timing of our investments and dispositions, cash expenditures, indebtedness, issuances of additional partnership interests, tax liabilities and amounts of reserves, each of which can affect the amount of cash that is available for distribution to holders of Blackstone Holdings Partnership Units. 

In addition, conflicts may arise relating to the selection, structuring and disposition of investments and other transactions, declaring dividends and other distributions and other matters due to the fact that our senior managing directors hold their Blackstone Holdings Partnership Units directly or through pass-through entities that are not subject to corporate income taxation.

Adding Blackstone to the S&P 500 increased demand for BX stock.  Famed investor Bill Fleckenstein calls automated index investing "the robot" that keeps stock indices up.

BX has provisions to keep common stockholders down.

Subject to applicable law, our certificate of incorporation contains provisions limiting the duties owed by the holder of our Series II preferred stock and contains provisions allowing the Series II Preferred Stockholder to favor its own interests and the interests of its controlling persons over us and the holders of our common stock. Our certificate of incorporation contains provisions stating that the Series II Preferred Stockholder is under no obligation to consider the separate interests of the other stockholders.
It's a sweet arrangement for the PEU boys.  How kind of the S&P 500 to include BX in the robot's automated stock buying.

Lower the bar and the barbarians rush right in....

Update 9-19-23:  Billionaire policy maker Stephen Schwarzman boldly predicted other candidates will come to the fore in the 2024 White House race.  Will it be former Carlyle Group co-CEO Glenn Youngkin or another PEU politician?

Update 9-30-23:  Top Red Team donors push Youngkin to join the Presidential race.