Blackstone (BX) - Get Report shares jumped more than 8.5% Thursday after the largest U.S. private-equity firm disclosed plans to convert to a corporation from a publicly traded partnership in an attempt to appeal more broadly to regular stock investors.
The conversion will allow investors to buy the shares without creating the need for a Schedule K-1, a special Internal Revenue Service tax form that's used to report earnings from partnerships, New York-based Blackstone said Thursday in a presentation on its website.
Founder and CEO Stephen Schwarzman has repeatedly complained that Blackstone's stock price isn't fairly valued, and analysts had speculated that converting to a stock corporation could help to boost the share price. Last year, rival private-equity firms KKR (KKR) - Get Report and Ares Management (ARES) - Get Report announced conversions, and their stock prices jumped in response.
The move "unlocks opportunity for equity value appreciation by removing ownership restrictions and meaningfully expanding the global investor universe," the company said in the presentation. It's a "compelling step in the evolution of Blackstone as a public company."
Private-equity firms profit by raising funds from investors and then using that money -- along with loans from banks -- to buy stakes in private companies, in hopes that they'll gain by selling the investments later at a higher price. The firms collect fees from investors for managing the money, along with incentive fees when the investments rise in value.
Prior to the last decade, most of private-equity firms were themselves private companies, typically owned by their founders and top executives through a partnership structure.
But as the biggest private-equity firms grew bigger, the founders and top executives looked to cash in their stakes by going public -- effectively selling partnership units that could be publicly traded on exchanges, like a stock.
But the nature of those partnership structures, which brought tax benefits, also made the securities more complicated for regular investors to buy, due to the additional tax-filing requirements.
The stock was rising 8.5% to $39.