Rejecting the Tender Offer of a Newly Private Company
Going public can provide numerous advantages for companies, but what happens when a company decides to go private after being publicly traded? As a shareholder in a company undergoing privatization, it’s important to understand the process and implications of rejecting a tender offer for the acquisition of your stock. This article provides insights into the reasons companies go private, the concept of tender offers, and the considerations involved in rejecting such offers.
Key Takeaways:
- Sometimes, public companies choose to go private to increase profitability or regain corporate control.
- Privatization involves the company buying back outstanding shares through a tender offer.
- Rejecting a tender offer as a small shareholder is often ineffective since majority votes are required for corporate actions.
- Large shareholders rejecting a tender offer may prevent privatization but may also trigger legal action.
When Public Companies Go Private:
- The Sarbanes-Oxley Act has prompted many public companies to opt for privatization.
- Reasons for going private vary, including management or private equity firm buyouts, pursuit of growth and higher profits, or disengagement from specific shareholders.
- Privatization often saves costs associated with being publicly traded and complying with SEC regulations.
Understanding Tender Offers:
- Tender offers are made to buy some or all of a company’s shareholders’ shares, typically at a premium.
- Shareholders stand to gain by selling their stock if a tender offer is available.
- While there’s no set premium, shareholders can expect around a 10% premium over market price in many cases.
Rejecting the Offer:
- Rejecting a tender offer without a substantial block of shares is unlikely to have an impact on management decisions.
- Holding illiquid stock can make selling more difficult as the market becomes thinner.
- Challenging a proposed transaction in court requires reasonable grounds and financial burden rests on the dissenting shareholder.
- Acquirers with a larger portion of outstanding stock can still force other shareholders to sell their shares.
The Bottom Line:
- Going private is not uncommon, and shareholders have the right to accept or reject tender offers, understanding the consequences.
- Most shareholders lack the influence to viably reject offers and may be forced to sell their shares.
- Consulting a financial advisor or broker for guidance on specific situations is recommended.
Note: The Sarbanes-Oxley Act is not directly applicable to rejecting tender offers, but it has influenced public companies’ decisions to go private.
Websites and Online Resources:
- Investopedia – An authoritative source that provides comprehensive information on various financial topics, including tender offers and going private transactions. Link to Investopedia
- Securities and Exchange Commission (SEC) – The official website of the SEC, which offers regulatory information and resources on securities transactions, including tender offers and going private transactions. Link to SEC
Books:
- “Mergers, Acquisitions, and Other Restructuring Activities” by Donald DePamphilis – A comprehensive book that covers various aspects of mergers, acquisitions, and restructuring, including tender offers and going private transactions. Link to book
- “Tender Offers: A Guide to Buying and Selling Securities” by Dennis E. Block and William M. Savitt – This book provides insights into the legal and practical aspects of tender offers, including strategies and considerations for shareholders. Link to book
Academic Journals and Research Papers:
- “The Economics of Tender Offers” by Michael A. Fishman and Kathleen M. Hagerty – A research paper published in The Journal of Finance that explores the economic implications of tender offers and provides insights into shareholder decision-making. Link to paper
- “Going-Private Decisions and the Sarbanes-Oxley Act of 2002: A Cross-Country Analysis” by Ettore Croci and Bruno Manaresi – A scholarly article that examines the impact of the Sarbanes-Oxley Act on going-private decisions of public companies. Link to article
Reports and Studies:
- “Going Private and Public-to-Private Transactions: A Review of the Literature” by Meziane Lasfer – A comprehensive review of academic research and studies on going private transactions, including tender offers, providing a deeper understanding of the phenomenon. Link to report
- “Tender Offers in the Context of Mergers and Acquisitions” by Harvard Law School Forum on Corporate Governance and Financial Regulation – A report that discusses the legal and regulatory aspects of tender offers and their significance in the context of mergers and acquisitions. Link to report
Professional Organizations and Associations:
- American Bar Association (ABA) – Business Law Section – The Business Law Section of the ABA offers resources, publications, and updates related to various corporate transactions, including tender offers and going private transactions. Link to ABA Business Law Section
- National Association of Corporate Directors (NACD) – An organization that provides resources and guidance on corporate governance, including insights into shareholder rights and considerations in tender offer situations. Link to NACD
