6 ms·

I don't understand all the rules at play here, but from a fairness standpoint, you shouldn't be forced to sell. That is the real problem as I see it. At least p

by lensi 10y ago

I don't understand all the rules at play here, but from a fairness standpoint, you shouldn't be forced to sell. That is the real problem as I see it. At least people forced to sell here got some money to kind of even things out. Can someone enlighten me here? What is the reasoning for allowing people to buy from people who don't want to sell?

witty_username 10y ago
I think the buyer gets a large majority of the votes from the shareholders to sell at $X/share.
maxerickson 10y ago
That's what is in the shareholder agreement. (some sort of majority rule that is)
- kazinator 10y ago
  If it's in the agreement, how can they have a leg to stand on? They agreed to such a thing! When you're forced to sell at whatever price, you lose any claim on the future price of the stock. If a court can give you more money later, then you effectively weren't really forced to sell the stock. You retained some sort of "ghost ownership" with an entitlement attached. Thus, effectively, the provisions of the shareholder agreement which have to do with this are disregarded.
  - maxerickson 10y ago
    My comment is a response to the post it is attached to, not an analysis of the case. That Dell was an insider probably complicates how to analyze this particular case.
  - cortesoft 10y ago
    As someone in a sibling comment posted, there is a statutory right in Delaware (where Dell was incorporated) allowing shareholders who don't vote for a buy out to demand judicial appraisal for the 'true' value of their shares.
travisby 10y ago
Think of it more as a hard asset rather than as voting rights in a company: Through one reason or another, you and I both own portions of a house. I own 95% of it, and you own 5%. I want to sell, because I would like to have the money. You believe if we wait a year we will make more money. Is it fair that your very much minority position could prevent me from selling my much larger stake? It's a house so chances are we can't sell it piecemeal (which is unlike stock of a company, but very similar to going private as a company!)
- StillBored 10y ago
  Except you point of the very problem with your argument. Stocks are liquid as small percentages of the company. It is quite possible for a single individual/organization to accumulate the vast majority of the shares/control of a company without forcing anyone to sell. I've been through this a few times with stocks I've held, and rarely am I happy about the outcome. For example about 10 years ago I saw something that apparently no one else on wall street saw, so I purchased a number of shares in three competing companies in proportion to how well I saw them profiting over the next 5-10 years. It wasn't 6 months later that Warren Buffet announced he was buying the company I had bet on the heaviest. Lets just say that I'm still sore about it 10 years later. I even checked the, "I want my stock converted to BRK/A" but they ignored it, because I was going to have too small a fraction of a single share of BRK (which would have been amusing by itself). Heck, in the 10 years since BRK/A has again doubled. So, IMHO, its just another case of the market being rigged for the big investors.
  - gohrt 10y ago
    Why didn't you buy shares of brk/b on the day your sale closed?
    - NamTaf 10y ago
      Without speaking on the GP's behalf, perhaps the leverage in a particular strategy represented by investing directly in the company made the risk worthwhile whereas the more diversified, risk-averse but lower-leverage investment represented by BRK/B was not?
jrsnyder 10y ago
As maxerickson said, this possibility should be covered in the shareholder agreement. For that reason, any shareholder is already responsible for factoring in the risk of a buyout-by-vote when they buy shares. They were already responsible for making their own decisions as to "fairness" of that agreement. No information was hidden before the buyout, according to the article, so no "evening out" should be necessary, as far as I can tell.
- dctoedt 10y ago
  > this possibility should be covered in the shareholder agreement. 1. It's a statutory right, so it doesn't need to be and generally isn't covered in shareholder agreements: By law in Delaware (where Dell was incorporated) and probably most other U.S. jurisdictions, minority shareholders who don't vote for a buy-out, and don't otherwise consent to it, can't stop the buy-out from going through, but they have the right to demand a judicial appraisal of the "true" value of their shares. [0] [1] 2. Also, public companies normally don't even have shareholder agreements among all shareholders. The articles of incorporation and the bylaws are probably the closest approximation. In many jurisdictions, the board of directors can unilaterally change the bylaws without shareholder approval. (Shareholder approval is often required for changes to the articles of incorporation, though.) [0] https://www.sec.gov/Archives/edgar/data/878280/000119312508204014/dex99f.htm https://www.sec.gov/Archives/edgar/data/878280/0001193125082... [1] http://www.jonesday.com/newsknowledge/publicationdetail.aspx?publication=2716 http://www.jonesday.com/newsknowledge/publicationdetail.aspx...
  - jrsnyder 10y ago
    Okay, I did not know about this law. Thank you.
  - cortesoft 10y ago
    So, exactly what happened here.
- arjie 10y ago
  And the buyer should have priced in (and probably did price in) the risk that this sort of thing can happen. I mean, this is not the first time this is happening. It's not like anyone hid the fact that minority shareholders who objected to the sale and met certain conditions could receive more money after going to court.
scott00 10y ago
Buyers are often only interested in buying 100% of a company. If an all or none bid comes in, either the people who want to accept or the people who want to reject are going to be unhappy. When setting up a company you have to plan how to deal with this possibility in advance, without knowing the specifics of any offer. Most large public companies come to the conclusion that letting the majority decide is the fairest thing to do, and most shareholders know that's how it works when they are buying the shares.
- wangii 10y ago
  Could you explain a little bit why private buyers often only interested in 100% of a company? thanks
  - ar0b 10y ago
    Probably so they no longer have to go through all the reporting and auditing required of a publicly traded company.
VT_Drew 10y ago
It isn't realistic with stocks. Are you really going to go get 100% consent from every single person that has stock in company? Even the people that only hold 100 shares (or 1 share for that matter)? You would never be able take publicly traded company and make it private this way.
- Retric 10y ago
  I don't think that's really a bad thing. If it's failing then the stock holders get nothing and assets get put on the market. If some piece is worth more then you can just sell that off. But, if company is public and profitable then what's the upside for society?
  - djrogers 10y ago
    If a company is failing or doing poorly in the stock market, sometimes a private buyout allows them to back off the quarter-to-quarter demands or to incur debt needed for expansion/R&D/acquisition etc. this freedom can enable a company to turn around, grow, etc - that's better for society than having it flounder for a few more years while bleeding...:
ucha 10y ago
There are two main ways to force existing shareholders to sell: 1. You buy 51% of the shares (and voting rights), make an offer to buy the remaining 49% and call for a shareholder meeting to vote on the offer. You have the majority, vote yes, and acquire the company. 2. You acquire 90% of the shares. You don't even have to call for a shareholders vote; you can acquire the company immediately and squeeze out existing shareholders who are forced to sell and the offer price. You can either acquire shares by submitting a tender offer (offering to buy shares at a specified price from shareholders) or tapping the public markets (and disclose it). If you think about this a bit more, you'll see there are ways to game the system by, for example, buying enough rights then making a low-ball offer but most of the loopholes are well covered by corporate law. To address your complaint on fairness, yes, you can be forced to sell because if most of the shareholders want to take the company private, it would seem fair from the majority's standpoint to accept its rule. Not perfect but I don't think there exists a better mechanism.
- pedrocr 10y ago
  >To address your complaint on fairness, yes, you can be forced to sell because if most of the shareholders want to take the company private, it would seem fair from the majority's standpoint to accept its rule. Not perfect but I don't think there exists a better mechanism. Why not just allow the option to let the company go private but let these stockholders retain their minority holding? If you, like the PE firm, think the company is undervalued by at least 20-30% why can't you just retain ownership through the deal and receive your proportion of dividends?
  - ucha 10y ago
    It's a good observation. Private companies with more than 500 shareholders have to obey a different sets of rule from those with fewer owners and must disclose financial performance in a way similar to that of public companies. Most of the time, you'd except to have more than 500 small shareholders that won't willingly sell.
  - spinlock 10y ago
    because you aren't a qualified investor and the SEC mandates certain obligations that the company must comply with to have you as an owner.
dpark 10y ago
>from a fairness standpoint, you shouldn't be forced to sell This is absurd. If you don't wish to be outvoted in the sale of a public company, then don't buy shares in a public company. This is the deal you agreed to when you bought in. As a minority shareholder, you don't get veto power. You cannot unilaterally block a sale any more than you can unilaterally evict the board. Nor should you be able to. As unfair as it may seem that someone else can force you to sell[1], it's just as unfair for you to be able to destroy other shareholders' value by blocking a sale. [1] It's actually not true that you are forced to sale. Just as if you own part of a house and the other party wants to sell, you have the option to buy instead. You can pony up the cash to buy the house at market value, and your can do the same and buy the whole company. Can't afford that? Tough. You don't get to deprive other stockholders by torpedoing the same.

by lensi 10y ago

witty_username 10y ago

I think the buyer gets a large majority of the votes from the shareholders to sell at $X/share.

maxerickson 10y ago

That's what is in the shareholder agreement. (some sort of majority rule that is)

kazinator 10y ago
If it's in the agreement, how can they have a leg to stand on? They agreed to such a thing! When you're forced to sell at whatever price, you lose any claim on the future price of the stock. If a court can give you more money later, then you effectively weren't really forced to sell the stock. You retained some sort of "ghost ownership" with an entitlement attached. Thus, effectively, the provisions of the shareholder agreement which have to do with this are disregarded.
- maxerickson 10y ago
  My comment is a response to the post it is attached to, not an analysis of the case. That Dell was an insider probably complicates how to analyze this particular case.
- cortesoft 10y ago
  As someone in a sibling comment posted, there is a statutory right in Delaware (where Dell was incorporated) allowing shareholders who don't vote for a buy out to demand judicial appraisal for the 'true' value of their shares.

travisby 10y ago

Think of it more as a hard asset rather than as voting rights in a company: Through one reason or another, you and I both own portions of a house. I own 95% of it, and you own 5%. I want to sell, because I would like to have the money. You believe if we wait a year we will make more money. Is it fair that your very much minority position could prevent me from selling my much larger stake? It's a house so chances are we can't sell it piecemeal (which is unlike stock of a company, but very similar to going private as a company!)

StillBored 10y ago
Except you point of the very problem with your argument. Stocks are liquid as small percentages of the company. It is quite possible for a single individual/organization to accumulate the vast majority of the shares/control of a company without forcing anyone to sell. I've been through this a few times with stocks I've held, and rarely am I happy about the outcome. For example about 10 years ago I saw something that apparently no one else on wall street saw, so I purchased a number of shares in three competing companies in proportion to how well I saw them profiting over the next 5-10 years. It wasn't 6 months later that Warren Buffet announced he was buying the company I had bet on the heaviest. Lets just say that I'm still sore about it 10 years later. I even checked the, "I want my stock converted to BRK/A" but they ignored it, because I was going to have too small a fraction of a single share of BRK (which would have been amusing by itself). Heck, in the 10 years since BRK/A has again doubled. So, IMHO, its just another case of the market being rigged for the big investors.
- gohrt 10y ago
  Why didn't you buy shares of brk/b on the day your sale closed?
  - NamTaf 10y ago
    Without speaking on the GP's behalf, perhaps the leverage in a particular strategy represented by investing directly in the company made the risk worthwhile whereas the more diversified, risk-averse but lower-leverage investment represented by BRK/B was not?

jrsnyder 10y ago

As maxerickson said, this possibility should be covered in the shareholder agreement. For that reason, any shareholder is already responsible for factoring in the risk of a buyout-by-vote when they buy shares. They were already responsible for making their own decisions as to "fairness" of that agreement. No information was hidden before the buyout, according to the article, so no "evening out" should be necessary, as far as I can tell.

dctoedt 10y ago
> this possibility should be covered in the shareholder agreement. 1. It's a statutory right, so it doesn't need to be and generally isn't covered in shareholder agreements: By law in Delaware (where Dell was incorporated) and probably most other U.S. jurisdictions, minority shareholders who don't vote for a buy-out, and don't otherwise consent to it, can't stop the buy-out from going through, but they have the right to demand a judicial appraisal of the "true" value of their shares. [0] [1] 2. Also, public companies normally don't even have shareholder agreements among all shareholders. The articles of incorporation and the bylaws are probably the closest approximation. In many jurisdictions, the board of directors can unilaterally change the bylaws without shareholder approval. (Shareholder approval is often required for changes to the articles of incorporation, though.) [0] https://www.sec.gov/Archives/edgar/data/878280/000119312508204014/dex99f.htm https://www.sec.gov/Archives/edgar/data/878280/0001193125082... [1] http://www.jonesday.com/newsknowledge/publicationdetail.aspx?publication=2716 http://www.jonesday.com/newsknowledge/publicationdetail.aspx...
- jrsnyder 10y ago
  Okay, I did not know about this law. Thank you.
- cortesoft 10y ago
  So, exactly what happened here.
arjie 10y ago
And the buyer should have priced in (and probably did price in) the risk that this sort of thing can happen. I mean, this is not the first time this is happening. It's not like anyone hid the fact that minority shareholders who objected to the sale and met certain conditions could receive more money after going to court.

scott00 10y ago

Buyers are often only interested in buying 100% of a company. If an all or none bid comes in, either the people who want to accept or the people who want to reject are going to be unhappy. When setting up a company you have to plan how to deal with this possibility in advance, without knowing the specifics of any offer. Most large public companies come to the conclusion that letting the majority decide is the fairest thing to do, and most shareholders know that's how it works when they are buying the shares.

wangii 10y ago
Could you explain a little bit why private buyers often only interested in 100% of a company? thanks
- ar0b 10y ago
  Probably so they no longer have to go through all the reporting and auditing required of a publicly traded company.

VT_Drew 10y ago

It isn't realistic with stocks. Are you really going to go get 100% consent from every single person that has stock in company? Even the people that only hold 100 shares (or 1 share for that matter)? You would never be able take publicly traded company and make it private this way.

Retric 10y ago
I don't think that's really a bad thing. If it's failing then the stock holders get nothing and assets get put on the market. If some piece is worth more then you can just sell that off. But, if company is public and profitable then what's the upside for society?
- djrogers 10y ago
  If a company is failing or doing poorly in the stock market, sometimes a private buyout allows them to back off the quarter-to-quarter demands or to incur debt needed for expansion/R&D/acquisition etc. this freedom can enable a company to turn around, grow, etc - that's better for society than having it flounder for a few more years while bleeding...:

ucha 10y ago

There are two main ways to force existing shareholders to sell: 1. You buy 51% of the shares (and voting rights), make an offer to buy the remaining 49% and call for a shareholder meeting to vote on the offer. You have the majority, vote yes, and acquire the company. 2. You acquire 90% of the shares. You don't even have to call for a shareholders vote; you can acquire the company immediately and squeeze out existing shareholders who are forced to sell and the offer price. You can either acquire shares by submitting a tender offer (offering to buy shares at a specified price from shareholders) or tapping the public markets (and disclose it). If you think about this a bit more, you'll see there are ways to game the system by, for example, buying enough rights then making a low-ball offer but most of the loopholes are well covered by corporate law. To address your complaint on fairness, yes, you can be forced to sell because if most of the shareholders want to take the company private, it would seem fair from the majority's standpoint to accept its rule. Not perfect but I don't think there exists a better mechanism.

pedrocr 10y ago
>To address your complaint on fairness, yes, you can be forced to sell because if most of the shareholders want to take the company private, it would seem fair from the majority's standpoint to accept its rule. Not perfect but I don't think there exists a better mechanism. Why not just allow the option to let the company go private but let these stockholders retain their minority holding? If you, like the PE firm, think the company is undervalued by at least 20-30% why can't you just retain ownership through the deal and receive your proportion of dividends?
- ucha 10y ago
  It's a good observation. Private companies with more than 500 shareholders have to obey a different sets of rule from those with fewer owners and must disclose financial performance in a way similar to that of public companies. Most of the time, you'd except to have more than 500 small shareholders that won't willingly sell.
- spinlock 10y ago
  because you aren't a qualified investor and the SEC mandates certain obligations that the company must comply with to have you as an owner.

dpark 10y ago

>from a fairness standpoint, you shouldn't be forced to sell This is absurd. If you don't wish to be outvoted in the sale of a public company, then don't buy shares in a public company. This is the deal you agreed to when you bought in. As a minority shareholder, you don't get veto power. You cannot unilaterally block a sale any more than you can unilaterally evict the board. Nor should you be able to. As unfair as it may seem that someone else can force you to sell[1], it's just as unfair for you to be able to destroy other shareholders' value by blocking a sale. [1] It's actually not true that you are forced to sale. Just as if you own part of a house and the other party wants to sell, you have the option to buy instead. You can pony up the cash to buy the house at market value, and your can do the same and buy the whole company. Can't afford that? Tough. You don't get to deprive other stockholders by torpedoing the same.