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Can someone explain to me how a public company can go private and there’s no fear of outcry from the shareholders in said company? Like companies do all these e

Can someone explain to me how a public company can go private and there’s no fear of outcry from the shareholders in said company? Like companies do all these evil things to please shareholders but wouldn’t many shareholders of a public company be against the transition back to private?

SapporoChris 1y ago
https://www.investopedia.com/articles/stocks/08/public-companies-privatize-go-private.asp https://www.investopedia.com/articles/stocks/08/public-compa...
rokobobo 1y ago
One thing is fiduciary duty to the shareholders, another is “pleasing the shareholders” as you describe it. Pleasing the shareholders is necessary only when displeasing them means they will sell the stock when there is no buyer. If there is a buyer, the current shareholders are less relevant — as long as management cannot be accused of not fulfilling their fiduciary duty to them.
- deleted 1y ago
  [deleted]
- hollerith 1y ago
  >sell the stock when there is no buyer It's hard to imagine what you mean here: a holder of shares cannot sell them unless they find someone willing to buy.
rcxdude 1y ago
With public companies more or less the only thing that shareholders can complain about in terms of the company being taken private is if the price is unfair (in which case they can sue). Otherwise the only thing that the entity buying needs is the consent of the board and a majority shareholder vote, whether by buying a controlling share themselves on the open market or by negotiating with them. Usually the private buyer offers a price higher than the current public market cap to incentivize the shareholders to vote for a sale. (And yes, this means that in practice there is a compelled sale of some fraction of the stock at whatever price the majority agrees to)
modeless 1y ago
They generally pay a premium to the stock price before the transaction is announced, which means shareholders get more than the market value of their investment, which they can immediately roll into other investments. Usually people don't mind getting paid extra.
- rdtsc 1y ago
  Exactly. There is usually a vote and then there is a premium price paid for the stock over market value. It happened to a company I held stock in. Years later there was a litigation started with some shareholders contesting the vote process and the results.
- baxtr 1y ago
  Yes but they also lose any potential gains in value after the transaction. Not being able to participate in a private company’s growth is something I find pretty annoying. For myself but also for society.
  - horsawlarway 1y ago
    Yeah... But society doesn't really have this problem. Plenty of ways to invest in private companies. You just need wealth and connections.
    - baxtr 1y ago
      > You just need wealth and connections. That’s exactly the problem I’m talking about. Public companies create more equality.
      - derektank 1y ago
        You could just eliminate the regulations on who can and cannot be an accredited investor. It's a bit paternalistic to tell people what they can and cannot spend their money on in the first place tbh
notatoad 1y ago
the shareholders have to vote to accept the deal. if they don't like the deal, they can vote against it. and then once the deal closes, they aren't shareholders anymore so the company's new owners don't have to care what they think.
mrandish 1y ago
> outcry from the shareholders If you're a shareholder, you can vote "no" to selling with your shares. Generally, selling a public company requires the majority of the shares to vote "yes" in order to force the minority shareholders to go along with the sale. Usually the share price being offered represents a substantial uplift over the current trading price of the shares (and thus the value of the company). If the transaction unfairly hurts the financial value for minority shareholders they can sue to block the transaction (which does happen).
- willio58 1y ago
  This makes a lot of sense. Thanks!
Vaslo 1y ago
Immediate 20-30% jump in stock price if shareholders approve and can reinvest anywhere else. With a huge one day gain. In some cases, preferred shareholders get even sweeter deals. If you’re an executive or board member with a tons of shares you make millions and can retire immediately (or at least after the transition you agree to is complete.)
- hollerith 1y ago
  "Immediate 20-30% jump in stock price" is not wrong, but it is clearer to say that for the acquisition to succeed, usually the acquirer must pay a 20-30% premium.
  - pfannkuchen 1y ago
    20-30% premium even over the fictional mark-to-market stock price. If all that were to hit the open market at once at any time, the price would plummet. I really question whether acquisition ROI is positive except in rare cases on a first order basis. Eliminating future compensation, securing a propaganda emitter, etc I can see (though not quite sure what the story would be in this case).
    - hollerith 1y ago
      >If all that were to hit the open market at once at any time, the price would plummet. But the price doesn't plummet when an attempt to acquire a company is announced. The price plummets when the holders of many shares want to sell. An attempted acquisition is the opposite of that situation.
      - pfannkuchen 1y ago
        Right, of course. My point is that the acquisition premium is actually higher than the nominal premium. The share price is for the current share supply. If the supply increases, then the price goes down. There is also a confounding effect in the cases where shares have actually flooded the market, where the confounder is whatever the reason for flooding is. But even if you magically forced a mass sale with no negative event causing it, the price would still plummet due to the supply flood.
mathattack 1y ago
If they don’t like it they can vote it down or make a higher bid. This is why almost all buyouts come with a premium. If they choose as a group not to sell then the deal doesn’t get done. They elect a board to get the best deal for them.
deleted 1y ago
[deleted]

SapporoChris 1y ago

https://www.investopedia.com/articles/stocks/08/public-companies-privatize-go-private.asp https://www.investopedia.com/articles/stocks/08/public-compa...

rokobobo 1y ago

One thing is fiduciary duty to the shareholders, another is “pleasing the shareholders” as you describe it. Pleasing the shareholders is necessary only when displeasing them means they will sell the stock when there is no buyer. If there is a buyer, the current shareholders are less relevant — as long as management cannot be accused of not fulfilling their fiduciary duty to them.

deleted 1y ago
[deleted]
hollerith 1y ago
>sell the stock when there is no buyer It's hard to imagine what you mean here: a holder of shares cannot sell them unless they find someone willing to buy.

rcxdude 1y ago

With public companies more or less the only thing that shareholders can complain about in terms of the company being taken private is if the price is unfair (in which case they can sue). Otherwise the only thing that the entity buying needs is the consent of the board and a majority shareholder vote, whether by buying a controlling share themselves on the open market or by negotiating with them. Usually the private buyer offers a price higher than the current public market cap to incentivize the shareholders to vote for a sale. (And yes, this means that in practice there is a compelled sale of some fraction of the stock at whatever price the majority agrees to)

modeless 1y ago

They generally pay a premium to the stock price before the transaction is announced, which means shareholders get more than the market value of their investment, which they can immediately roll into other investments. Usually people don't mind getting paid extra.

rdtsc 1y ago
Exactly. There is usually a vote and then there is a premium price paid for the stock over market value. It happened to a company I held stock in. Years later there was a litigation started with some shareholders contesting the vote process and the results.
baxtr 1y ago
Yes but they also lose any potential gains in value after the transaction. Not being able to participate in a private company’s growth is something I find pretty annoying. For myself but also for society.
- horsawlarway 1y ago
  Yeah... But society doesn't really have this problem. Plenty of ways to invest in private companies. You just need wealth and connections.
  - baxtr 1y ago
    > You just need wealth and connections. That’s exactly the problem I’m talking about. Public companies create more equality.
    - derektank 1y ago
      You could just eliminate the regulations on who can and cannot be an accredited investor. It's a bit paternalistic to tell people what they can and cannot spend their money on in the first place tbh

notatoad 1y ago

the shareholders have to vote to accept the deal. if they don't like the deal, they can vote against it. and then once the deal closes, they aren't shareholders anymore so the company's new owners don't have to care what they think.

mrandish 1y ago

> outcry from the shareholders If you're a shareholder, you can vote "no" to selling with your shares. Generally, selling a public company requires the majority of the shares to vote "yes" in order to force the minority shareholders to go along with the sale. Usually the share price being offered represents a substantial uplift over the current trading price of the shares (and thus the value of the company). If the transaction unfairly hurts the financial value for minority shareholders they can sue to block the transaction (which does happen).

willio58 1y ago
This makes a lot of sense. Thanks!

Vaslo 1y ago

Immediate 20-30% jump in stock price if shareholders approve and can reinvest anywhere else. With a huge one day gain. In some cases, preferred shareholders get even sweeter deals. If you’re an executive or board member with a tons of shares you make millions and can retire immediately (or at least after the transition you agree to is complete.)

hollerith 1y ago
"Immediate 20-30% jump in stock price" is not wrong, but it is clearer to say that for the acquisition to succeed, usually the acquirer must pay a 20-30% premium.
- pfannkuchen 1y ago
  20-30% premium even over the fictional mark-to-market stock price. If all that were to hit the open market at once at any time, the price would plummet. I really question whether acquisition ROI is positive except in rare cases on a first order basis. Eliminating future compensation, securing a propaganda emitter, etc I can see (though not quite sure what the story would be in this case).
  - hollerith 1y ago
    >If all that were to hit the open market at once at any time, the price would plummet. But the price doesn't plummet when an attempt to acquire a company is announced. The price plummets when the holders of many shares want to sell. An attempted acquisition is the opposite of that situation.
    - pfannkuchen 1y ago
      Right, of course. My point is that the acquisition premium is actually higher than the nominal premium. The share price is for the current share supply. If the supply increases, then the price goes down. There is also a confounding effect in the cases where shares have actually flooded the market, where the confounder is whatever the reason for flooding is. But even if you magically forced a mass sale with no negative event causing it, the price would still plummet due to the supply flood.

mathattack 1y ago

If they don’t like it they can vote it down or make a higher bid. This is why almost all buyouts come with a premium. If they choose as a group not to sell then the deal doesn’t get done. They elect a board to get the best deal for them.

deleted 1y ago

[deleted]