NEW YORK CITY-Locally based global alternative asset manager Blackstone Group LP plans to buy GSO Capital Partners LP for $620 million in cash. Blackstone Holdings units will pay up to $310 million over the next five years contingent on specific earnings targets. In addition, compensatory payments may be paid based on vesting and performance. Blackstone expects this transaction to be nondilutive.

According to Blackstone, the acquisition will enhance its global alternative investment platform in the credit area, will add new lines of business and will create significant synergies and opportunities for the firm. Stephen Schwarzman, chairman and CEO of Blackstone, says in a prepared statement that "the combination of GSO's businesses with our existing corporate debt operations will produce one of the largest credit platforms in the alternative asset management business," with more than $21 billion of total assets under management. "Given the current dislocation in the credit markets, this is an ideal time to create a more powerful, diversified platform from which to grow Blackstone's business," he adds.

Hamilton James, president and COO of Blackstone, explains that "by accessing our considerable private equity and other resources, we expect this group [GSO] to generate substantial incremental value for the limited partners of both firms' credit funds as well as for Blackstone's common unit holders." The acquisition is subject to execution of a definitive purchase agreement and satisfaction of closing conditions and is expected to close later in the first quarter.

Blackstone also revealed that the board of directors of its general partner, Blackstone Group Management LLC, has authorized the repurchase of up to $500 million of Blackstone common units and Blackstone Holdings units. Under this unit repurchase program, units may be repurchased from time to time in open market transactions, in privately negotiated transactions or otherwise. The timing and the actual number of Blackstone common units and Blackstone Holdings units repurchased will depend on a variety of factors, including legal requirements, price and economic and market conditions. This unit repurchase program may be suspended or discontinued at any time and does not have a specified expiration date, the company says.

Blackstone's current intention is to seek to repurchase at least enough units to offset the issuance of units as part of the consideration in the GSO acquisition. "We believe that our common units are undervalued," James says, "and we therefore intend to offset the issuance of Holdings units to the owners of GSO by repurchasing the same amount of units from existing holders."