Blackstone says tax changes could hurt value

NEW YORK Blackstone Group LP which is preparing to go public later this month, said on Friday that proposed U.S. Senate legislation on the taxation of private equity firms could materially reduce earnings and lower the partnership's value.The big private equity firm expressed its concern a day after the leaders of the Senate Finance Committee proposed a bill to tax private equity firms that go public like corporations, potentially more than doubling their effective tax rate to 35 percent from 15 percent.Max Baucus, a Montana Democrat and committee chair, and Iowa's Charles Grassley, the ranking Republican, said buyout firms and hedge funds circumvent the intent behind U.S. tax law by going public as partnerships, given that much of their business comes from financial services and capital markets.New York-based Blackstone said the proposed law would apply to it beginning with the 2013 tax year, according to an amended prospectus for its roughly $4 billion initial public offering filed with the U.S. Securities and Exchange Commission,If this or any similar legislation or regulation were to be enacted and to apply to us, we would incur a material increase in our tax liability and (it) could well result in a reduction in the value of our common units," Blackstone said.It wasn't immediately clear how likely the proposed Senate bill or something like it might become law. The bill won praise Thursday from Rep. Charles Rangel, a New York Democrat who chairs the powerful House Ways and Means Committee.Blackstone is expected to conduct the year's largest U.S. initial public offering during the week of June 25. It has said it plans to offer 133.3 million units at $29 to $31 each, raising a potential $3.87 billion to $4.13 billion.The Baucus/Grassley bill's five-year grace period before taxes rise would also apply to Fortress Investment Group LLC which conducted its IPO in February, but other private equity firms seeking to go public would see taxes rise immediately.Fortress shares fell $1.69, or 6.7 percent, to $23.42 in afternoon trading on the New York Stock Exchange.