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I'm not sure I buy any of these discussions, especially the "Long Term Stock Exchange". In a company, you have a board and you have shareholders. If you don't

I'm not sure I buy any of these discussions, especially the "Long Term Stock Exchange". In a company, you have a board and you have shareholders. If you don't want the mould of a public company, you create or keep it as a private company. In a private company, you can do any of these employee stock options or buybacks or long term things, much as you can do with a public company, if you wanted to. The board and the shareholders have a similar sort of dynamic in both, but I would say the board of a private company invites less scrutiny, or at least less fully public scrutiny. So what is the difference between a public company and a private company---in the context of this discussion? The main difference is that in a private company, especially if you didn't set up your shareholders agreement in a friendly way, you can have deadlocks where shareholders can't sell their stock. This I think is what JPMorgan is targeting, and based on my experience, it's a pretty clever segment of the market to try something, since, as the article and I mention, private companies have inherent difficulties to trade stock (especially if the shareholders are not fond of each other). The stock value of private companies can be undervalued too, and this would mean that JPMorgan would create additional cash out of thin air. Or rather, by analogy magically unlock lost Bitcoin wallets. Some examples of private companies: Carlsberg, Lidl, Aldi, Deloitte, PWC, IKEA, Koch Industries. What I find interesting is that this article about private companies was posted after the, ehm, funny LTSE one (seriously, the London Stock Exchange is LSE...) and it would arguably be the closest existing structure where you are not bound by public company expectation, and in theory you could build a rather charitable setup from a private company, much like the LTSE article's prose likes to promise.

abdullahkhalids 6y ago
Is it possible for a company to split into a parent company and child company? The child is publicly traded but the parent own 51% of child company's shares so continue to have decision making power. What are the pros and cons of this approach?
- djbebs 6y ago
  Yes, it is possible to jave such a system. Semapa, a portuguese company traded in the lisbon stock exchange has such a structure
  - AtlasBarfed 6y ago
    But if there's a paper problem, if you take over one company in the chain and sneak through the company above it, suddenly you own the whole company? Especially one of the small ones?
- WanderPanda 6y ago
  Is there a limit to a recursive structure of 51% holding companies? If not, one entity could hold all the decision making power without basically owning equity (in the limit)
  - MHordecki 6y ago
    Each company C_n would own 51% of the company C_{n-1} (with C_1 being the actual company). At every point each company owns a sizable chunk of equity.
  - abdullahkhalids 6y ago
    Nice. You could even have a fractal structure. I dare a billionaire to make a Mandelbrot set with a bunch of shell companies.
    - cschneid 6y ago
      Something like this was a minor plot point in Accellerando (book by Charles Stross). IP being rapidly bought & sold between a network of related inter-owned companies, to avoid ever holding it long enough to be sued or something.
  - strulovich 6y ago
    That problem exists. For example, Israel enacted a law to prevent that after such problems arose: https://en.m.wikipedia.org/wiki/Israel%27s_Anti-Concentration_Law https://en.m.wikipedia.org/wiki/Israel%27s_Anti-Concentratio...
- Joeri 6y ago
  You don't need to do this, you can just make multiple classes of shares and only put one class on the market. Zuckerberg personally owns a majority share of facebook, and yet it is publicly traded. Facebook public shareholders have no voting power, because zuckerberg has two thirds of the votes.
  - perlgeek 6y ago
    There are other reasons to do such splits though; a popular is tax evasion (the parent company holds the intellectual property, and charges the child company enough fees that the child company doesn't make any profits), and of course private companies don't have the same disclosure obligations as public companies.
  - dasudasu 6y ago
    It's usually not seen very positively by the market unless the holder is viewed as extraordinarily visionary. Outside of tech, it's much harder to spin the visionary angle, so they often trade at a significant discount to their peers. It's the removal of a form of checks and balances. If the direction is good, shareholders would go along anyway, but if it's bad, there is nothing to do to exert influence except jump ship.
- stevehawk 6y ago
  Yes, and you can IPO but retain majority of the shares for yourself so you don’t lose majority vote. Carlyle group bought Booz Allen Hamilton and IPO’d it, but only sold 25% of the shares to the public. (Then they took out a billion dollar loan, spent it all on dividends which means Carlyle took a loan to pay themselves a bonus... and then immediately cut all employee benefits.. that would be when I quit /rant)
- dasudasu 6y ago
  It's extremely easy for the parent company to abuse the minority shareholders in the child company even if there are laws against it, because it can be hard to prove malicious intent. It's outside of tech, but a recent case I have followed all the way through is Katanga Mining (TSX:KAT), now delisted. It was a company engaged in mining in the DRC, owned 88% at the time by mining conglomerate Glencore with the rest mostly by retail shareholders. The mine was still being built, so there were no or minimal revenues, but lots of debt from financing the construction. All that debt was contracted from Glencore directly and put on Katanga's book. The rates were pretty insane (12+%) considering the risk of the venture. Now this is where the obvious conflict of interest arises. First, it's obvious that Glencore benefited from raising the interest rate as high as possible. The debt was becoming so large, and with interest rates so high, any future earnings from the mine were mostly going to go to repayment of that debt. If you're a holder of Katanga directly, that means you get to see no earnings, but if you're Glencore, you still receive all of them from the debt payments. Funnily enough, the DRC was also part of this venture, with a stake in the mine under deployment, thus sharing some of the debt. They complained about the scheme, as it was plainly obvious to them as well, and asked Glencore to eliminate part of this debt or risk seeing the mine nationalized. Glencore complied and moved some of that debt to Katanga's books. It still had an impact to them, but there was an even more disproportionate one to retail holders of Katanga. There is nothing shareholders could have done because Glencore called all the shots due to their 88% ownership. The stock obviously tanked over time and Glencore eventually swept in to buy all of the remaining shares at extremely depressed valuations. Shortly before that happened, they had even done a stock offering for "debt recapitalization", which attracted no interest but tanked the share price even further. In less extreme examples, you can still see it with royalty payments to the parent company, or other dubious transactions like that between the two.
  - AtlasBarfed 6y ago
    Did glencore short or use derivatives on the retail shares as well?
    - dasudasu 6y ago
      Don’t know actually, but wouldn’t put it past them to do so under the justification of hedging.
- elliekelly 6y ago
  You would have to file periodic public disclosures about your ownership stake and transactions in the company. Owning or controlling (directly, or indirectly, e.g., through a private company) 5% or more of the outstanding shares of any one share class makes you a "beneficial owner" under Section 13 of the Exchange Act and you become an "insider" under Section 16 of the Exchange Act if you own more than 10% of a class of a public company's registered securities. Section 16 also allows the company to recover "short swing" profits from insiders within a six-month transaction period so insiders need to plan transactions in advance to avoid the appearance of impropriety. I'm also not sure what the benefit would be? The compliance/reporting/disclosure obligations would be more or less the same as creating a "founders class" of stock with juiced voting rights.
AtlasBarfed 6y ago
Cargill is the largest private company in the world.

abdullahkhalids 6y ago

Is it possible for a company to split into a parent company and child company? The child is publicly traded but the parent own 51% of child company's shares so continue to have decision making power. What are the pros and cons of this approach?

djbebs 6y ago
Yes, it is possible to jave such a system. Semapa, a portuguese company traded in the lisbon stock exchange has such a structure
- AtlasBarfed 6y ago
  But if there's a paper problem, if you take over one company in the chain and sneak through the company above it, suddenly you own the whole company? Especially one of the small ones?
WanderPanda 6y ago
Is there a limit to a recursive structure of 51% holding companies? If not, one entity could hold all the decision making power without basically owning equity (in the limit)
- MHordecki 6y ago
  Each company C_n would own 51% of the company C_{n-1} (with C_1 being the actual company). At every point each company owns a sizable chunk of equity.
- abdullahkhalids 6y ago
  Nice. You could even have a fractal structure. I dare a billionaire to make a Mandelbrot set with a bunch of shell companies.
  - cschneid 6y ago
    Something like this was a minor plot point in Accellerando (book by Charles Stross). IP being rapidly bought & sold between a network of related inter-owned companies, to avoid ever holding it long enough to be sued or something.
- strulovich 6y ago
  That problem exists. For example, Israel enacted a law to prevent that after such problems arose: https://en.m.wikipedia.org/wiki/Israel%27s_Anti-Concentration_Law https://en.m.wikipedia.org/wiki/Israel%27s_Anti-Concentratio...
Joeri 6y ago
You don't need to do this, you can just make multiple classes of shares and only put one class on the market. Zuckerberg personally owns a majority share of facebook, and yet it is publicly traded. Facebook public shareholders have no voting power, because zuckerberg has two thirds of the votes.
- perlgeek 6y ago
  There are other reasons to do such splits though; a popular is tax evasion (the parent company holds the intellectual property, and charges the child company enough fees that the child company doesn't make any profits), and of course private companies don't have the same disclosure obligations as public companies.
- dasudasu 6y ago
  It's usually not seen very positively by the market unless the holder is viewed as extraordinarily visionary. Outside of tech, it's much harder to spin the visionary angle, so they often trade at a significant discount to their peers. It's the removal of a form of checks and balances. If the direction is good, shareholders would go along anyway, but if it's bad, there is nothing to do to exert influence except jump ship.
stevehawk 6y ago
Yes, and you can IPO but retain majority of the shares for yourself so you don’t lose majority vote. Carlyle group bought Booz Allen Hamilton and IPO’d it, but only sold 25% of the shares to the public. (Then they took out a billion dollar loan, spent it all on dividends which means Carlyle took a loan to pay themselves a bonus... and then immediately cut all employee benefits.. that would be when I quit /rant)
dasudasu 6y ago
It's extremely easy for the parent company to abuse the minority shareholders in the child company even if there are laws against it, because it can be hard to prove malicious intent. It's outside of tech, but a recent case I have followed all the way through is Katanga Mining (TSX:KAT), now delisted. It was a company engaged in mining in the DRC, owned 88% at the time by mining conglomerate Glencore with the rest mostly by retail shareholders. The mine was still being built, so there were no or minimal revenues, but lots of debt from financing the construction. All that debt was contracted from Glencore directly and put on Katanga's book. The rates were pretty insane (12+%) considering the risk of the venture. Now this is where the obvious conflict of interest arises. First, it's obvious that Glencore benefited from raising the interest rate as high as possible. The debt was becoming so large, and with interest rates so high, any future earnings from the mine were mostly going to go to repayment of that debt. If you're a holder of Katanga directly, that means you get to see no earnings, but if you're Glencore, you still receive all of them from the debt payments. Funnily enough, the DRC was also part of this venture, with a stake in the mine under deployment, thus sharing some of the debt. They complained about the scheme, as it was plainly obvious to them as well, and asked Glencore to eliminate part of this debt or risk seeing the mine nationalized. Glencore complied and moved some of that debt to Katanga's books. It still had an impact to them, but there was an even more disproportionate one to retail holders of Katanga. There is nothing shareholders could have done because Glencore called all the shots due to their 88% ownership. The stock obviously tanked over time and Glencore eventually swept in to buy all of the remaining shares at extremely depressed valuations. Shortly before that happened, they had even done a stock offering for "debt recapitalization", which attracted no interest but tanked the share price even further. In less extreme examples, you can still see it with royalty payments to the parent company, or other dubious transactions like that between the two.
- AtlasBarfed 6y ago
  Did glencore short or use derivatives on the retail shares as well?
  - dasudasu 6y ago
    Don’t know actually, but wouldn’t put it past them to do so under the justification of hedging.
elliekelly 6y ago
You would have to file periodic public disclosures about your ownership stake and transactions in the company. Owning or controlling (directly, or indirectly, e.g., through a private company) 5% or more of the outstanding shares of any one share class makes you a "beneficial owner" under Section 13 of the Exchange Act and you become an "insider" under Section 16 of the Exchange Act if you own more than 10% of a class of a public company's registered securities. Section 16 also allows the company to recover "short swing" profits from insiders within a six-month transaction period so insiders need to plan transactions in advance to avoid the appearance of impropriety. I'm also not sure what the benefit would be? The compliance/reporting/disclosure obligations would be more or less the same as creating a "founders class" of stock with juiced voting rights.

AtlasBarfed 6y ago

Cargill is the largest private company in the world.