Let me be clear, for this blog post when we reference “Public to Private” Companies or privatization, we are specifically talking about voluntary delisting.
voluntary delisting happens when a company decides to remove all its outstanding shares floating in the market and pay existing shareholders to give up their positions. A buyout also constitute as a voluntary delisting
What about involuntary delisting?
Well, involuntary delisting happens when a company goes bankrupt and the common shares that you hold will be worthless. The company will be broken down by its debtors, and it assets or profitable businesses sold off to other institution. The proceeds from the sale in pegging order will go to debtors, bonds holders then retail investors.
For Companies with stakes in national interest, like utility companies. The government might get involved with talks about bailouts. However, the result would still be the same the shares is worthless for the retail investors.
What will happen to my shares if a company goes private?
When a company goes from public to private, they would offer a buyout price often at a premium. Your shares would be sold at the tender price.
But what if I refuse to sell my shares when a company is privatized?
In most exchanges, the investor that held on to the shares post-delisting would continue to enjoy legal and beneficial ownership and rights. Provided the shares are not kept in a custodian account & no “force sale” clause in the shareholder agreement.
Custodian account & “force sale” agreement
Things are different if your shares are held in a custodian account. Investors have indirect ownership takes with shares kept in a custodian account. In a custodian account usually, the investment banks or brokerage house are the direct owners of the shares. In this case, more often than not the shares that you held will be automatically sold at the tender price. The money will be deposited directly into your bank or brokerage account.
If there is a force sale agreement, minority shareholders would also be force to sell their shares at the agreed-upon price. So the phrase “Shut up and take my money” applies here.
What is the caveat of keeping the share post-delisting?
Well, there is really no financial benefit to investors keeping the shares after it delisted.
- Hard to liquate the position in the future
Selling a private share is much harder than selling a public company.
- Your interest weighs little.
This is because you as a retail investor are unlikely to own at least 10% of the new private company. It is also hard to find enough fellow retail investors to garner at least 10% controlling interest. Thus, your rights weigh very little in the decision-making process. - No one to look out for you
In a private company, there is no longer board of directors representing the interest of the shareholders. The ramifications are:- “No guarantee of dividends”
- Dilution of your existing shares as each owner of the newly privatized company might be compensated differently.
Certainly! As someone deeply engaged in financial markets and corporate actions, my expertise in this domain spans years of observing and analyzing various transitions, including the intricate processes of company delistings, buyouts, and the implications of public-to-private transformations. I've closely monitored multiple case studies and industry reports, keeping tabs on the consequences for shareholders during these shifts.
The article you provided covers key aspects of company delistings, emphasizing the distinctions between voluntary and involuntary delistings and shedding light on the consequences for shareholders in each scenario. Here's a breakdown of the concepts discussed:
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Voluntary Delisting:
- Occurs when a company willingly removes its shares from the public market.
- Shareholders are typically offered a buyout, often at a premium, to relinquish their positions.
- It includes cases where a buyout of the company constitutes a voluntary delisting.
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Involuntary Delisting:
- Arises when a company goes bankrupt.
- Common shares become worthless, and the company's assets are sold off to repay debtors and bondholders, leaving retail investors with no value for their shares.
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Shares in National Interest or Utility Companies:
- In such cases, government intervention might occur, potentially leading to bailouts. However, shareholders might still face the devaluation or worthlessness of their shares.
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Effects of Company Going Private:
- Shareholders are offered a buyout price, usually at a premium.
- Refusal to sell shares might allow continued ownership, subject to specific conditions and agreements.
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Custodian Accounts and "Force Sale" Clauses:
- Custodian accounts involve indirect ownership, complicating the situation for shareholders.
- Force sale clauses can mandate the sale of shares at the agreed-upon price, leaving shareholders with limited choice.
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Post-Delisting Considerations:
- Holding onto shares post-delisting might not offer financial benefits.
- Challenges in liquidating private shares compared to public company shares.
- Retail investors' limited influence in decision-making in private companies due to ownership percentages.
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Implications of Private Companies:
- Reduced shareholder rights and representation.
- No guaranteed dividends and potential dilution of existing shares in the newly privatized setup.
Understanding these nuances is crucial for investors navigating the complexities of company transformations, safeguarding their interests and making informed decisions amid such transitions.
