4 ms·

Is there any reason for the buyer here who already owns almost 80% of the company to offer a 67% premium for the remaining 20% of the shares? What would have ha

Is there any reason for the buyer here who already owns almost 80% of the company to offer a 67% premium for the remaining 20% of the shares? What would have happened if they offered a 30% premium or a 15% one (from what I understand, they have both simple majority and qualified majority so that means they don't really need to ask anyone for anything). It's not like they want to get 100% ownership since this is a purely voluntary buy-out and existing investors can choose to stay.

sdenton4 3y ago
It's probably a question of who exactly holds that other 20% of shares... There's a decent chance it's mostly held by one or a few long-time investors/contributors/??? and the premium is the price of good-will.
JimXugle 3y ago
My knowledge on this is limited, and US-specific, but I'd imagine the situation in Europe is similar... In the US, publicly traded companies are subject to a lot of laws that private companies aren't subject to, most notably being required to make periodic public disclosures about finances and (to a more limited extent) business plans. Making false statements on these required disclosures is a crime, even if not intentional. The majority stakeholder might've done the math and realized that it's cheaper to buy out the other shareholders than it is to continue making those disclosures and risking criminal prosecution.
- justinclift 3y ago
  In some countries, minority stake holders over a certain percentage (5% ?) from memory can be entitled to various measures as well. eg being able to check the company books / financials, and so on
- rurban 3y ago
  it looks more to me that the key feature is the wording "long term" in their announcement. if you plan long term strategic shifts, most shareholders will bail out earlier when the quarterly publications once doesn't look too good. which hurts the whole plan. so if you need to invest long term, it's better to get rid of those short term investors, which can bring everything down. private you don't need to publish your results, that's why most German companies prefer to stay private. they think in 6 year plans, not 1/4th year plans
elmepo 3y ago
My guess is that they personally prefer to own 100%, but for various reasons around who specifically owns the remaining shares (e.g. senior employees or friendly firms) they don't want to force them to sell. So they instead offer a large premium and hope/assume those parties will accept.
buzer 3y ago
In Finland if someone controls over 90% of the shares they have right to forcefully buy rest of the shares (and also obligation if someone wants to sell at at that point). So if they wanted to go fully own the company they need to high enough offer that they will at least hit 90%. I'm not sure if you could from public company to private without all shareholders agreeing to it as that would benefit large shareholder at minority holders cost. No clue if there are similar laws in Germany or other countries.
- saghm 3y ago
  Interesting; if someone does this, do they have to pay a premium at all, or are they able to buy them at the exact current market rate? Also is this just for publicly traded companies or private ones as well? At least in the US, my understanding is that private companies set the "fair market value" of their shares themselves, so I'd be worried that someone could purposely set the price low to be able to buy them out more cheaply.
  - buzer 3y ago
    There is redemption committee in Finland Chamber of Commerce that will assign a arbitration court to handle the redemption. They will also assign a trustee who will represent the minority shareholders. The valuation is decided during the arbitration process. From what I understand if there has been previous offer to buy it's quite likely that will be used at least as initial basis for the price. There seems to be at least one English article about the process: https://insights.fondia.com/fi/en/articles/corporate-law/shareholders/redemption-of-minority-shares/redemption-procedure https://insights.fondia.com/fi/en/articles/corporate-law/sha...
    - saghm 3y ago
      Thanks for the info! I'll take a look
- theonemind 3y ago
  For me in the US, it’s a strange notion that you could compel someone to buy the last 10% of the company. That does not always seem possible. What happens if you literally can’t do it? That’s probably rare, but if 90% of the company is most of your assets, and you’ve somehow borrowed against it already, it could be almost literally impossible.
devjab 3y ago
There can be a lot of reasons and I’m not sure you can find an answer unless they directly give you one. I would guess that it’s part decorum part attempt to minimise the administrative burden. Many European PE’s operate on a “there is enough money to be made by being fair” sort of motto. This can be because they mean it, but it’s also because not being “evil” it a marketable product to many EU investors (this is likely true outside the EU as well, but I only know about EU markets). Then there is the part where private companies are still responsible for keeping track of ownership, as well as informing them. Even if they plan on letting investors trade on some internal platform it’s still a rather large administrative burden that becomes easier the fewer shareholders they have. This is still just me guessing, but the way I read this it’s a simple message. Investors get a nice out and they’re going to be disappointed if they don’t take it.
zxspectrum1982 3y ago
My bet: they want to restructure and sell the company. Selling something you don't fully own is tough so they'd rather control 100% of it and then sell it, even at a loss.

sdenton4 3y ago

It's probably a question of who exactly holds that other 20% of shares... There's a decent chance it's mostly held by one or a few long-time investors/contributors/??? and the premium is the price of good-will.

JimXugle 3y ago

My knowledge on this is limited, and US-specific, but I'd imagine the situation in Europe is similar... In the US, publicly traded companies are subject to a lot of laws that private companies aren't subject to, most notably being required to make periodic public disclosures about finances and (to a more limited extent) business plans. Making false statements on these required disclosures is a crime, even if not intentional. The majority stakeholder might've done the math and realized that it's cheaper to buy out the other shareholders than it is to continue making those disclosures and risking criminal prosecution.

justinclift 3y ago
In some countries, minority stake holders over a certain percentage (5% ?) from memory can be entitled to various measures as well. eg being able to check the company books / financials, and so on
rurban 3y ago
it looks more to me that the key feature is the wording "long term" in their announcement. if you plan long term strategic shifts, most shareholders will bail out earlier when the quarterly publications once doesn't look too good. which hurts the whole plan. so if you need to invest long term, it's better to get rid of those short term investors, which can bring everything down. private you don't need to publish your results, that's why most German companies prefer to stay private. they think in 6 year plans, not 1/4th year plans

elmepo 3y ago

My guess is that they personally prefer to own 100%, but for various reasons around who specifically owns the remaining shares (e.g. senior employees or friendly firms) they don't want to force them to sell. So they instead offer a large premium and hope/assume those parties will accept.

buzer 3y ago

In Finland if someone controls over 90% of the shares they have right to forcefully buy rest of the shares (and also obligation if someone wants to sell at at that point). So if they wanted to go fully own the company they need to high enough offer that they will at least hit 90%. I'm not sure if you could from public company to private without all shareholders agreeing to it as that would benefit large shareholder at minority holders cost. No clue if there are similar laws in Germany or other countries.

saghm 3y ago
Interesting; if someone does this, do they have to pay a premium at all, or are they able to buy them at the exact current market rate? Also is this just for publicly traded companies or private ones as well? At least in the US, my understanding is that private companies set the "fair market value" of their shares themselves, so I'd be worried that someone could purposely set the price low to be able to buy them out more cheaply.
- buzer 3y ago
  There is redemption committee in Finland Chamber of Commerce that will assign a arbitration court to handle the redemption. They will also assign a trustee who will represent the minority shareholders. The valuation is decided during the arbitration process. From what I understand if there has been previous offer to buy it's quite likely that will be used at least as initial basis for the price. There seems to be at least one English article about the process: https://insights.fondia.com/fi/en/articles/corporate-law/shareholders/redemption-of-minority-shares/redemption-procedure https://insights.fondia.com/fi/en/articles/corporate-law/sha...
  - saghm 3y ago
    Thanks for the info! I'll take a look
theonemind 3y ago
For me in the US, it’s a strange notion that you could compel someone to buy the last 10% of the company. That does not always seem possible. What happens if you literally can’t do it? That’s probably rare, but if 90% of the company is most of your assets, and you’ve somehow borrowed against it already, it could be almost literally impossible.

devjab 3y ago

There can be a lot of reasons and I’m not sure you can find an answer unless they directly give you one. I would guess that it’s part decorum part attempt to minimise the administrative burden. Many European PE’s operate on a “there is enough money to be made by being fair” sort of motto. This can be because they mean it, but it’s also because not being “evil” it a marketable product to many EU investors (this is likely true outside the EU as well, but I only know about EU markets). Then there is the part where private companies are still responsible for keeping track of ownership, as well as informing them. Even if they plan on letting investors trade on some internal platform it’s still a rather large administrative burden that becomes easier the fewer shareholders they have. This is still just me guessing, but the way I read this it’s a simple message. Investors get a nice out and they’re going to be disappointed if they don’t take it.

zxspectrum1982 3y ago

My bet: they want to restructure and sell the company. Selling something you don't fully own is tough so they'd rather control 100% of it and then sell it, even at a loss.