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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

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
      - cudgy 1y ago
        True. Average people are sophisticated enough to understand complex financial instruments designed to scam them by an army of lawyers and MBAs trained at the finest financial institutions and law schools.
        derektank 1y ago
        How does having a net worth of $1M or an annual income of over $200K inure you to being scammed by complex financial instruments? Also, we already let people engage in sports gambling (which is guaranteed to result in a net loss) and cryptocurrency speculation, (which is a zero sum game). I'd rather give people more options to invest in financial instruments that at least in theory have the potential to be positive sum, since we're not going to ban either of the other two any time soon.
        cudgy 1y ago
        Your examples of cryptocurrency and sports gambling are a perfect example of my criticism. There are virtually no people that are sophisticated enough to succeed in either of those activities as they are all based on pure speculation and luck. There is no actual asset in either of these cases. While some modern crypto coins might be back with actual assets, many crypto coins are backed by only speculation and no actual assets. Basically they’re scams.
        derektank 1y ago
        Yes, that was my point. Both are scams, but both are very legal. It seems dumb to bar people from investing in real, productive assets (even complex ones that might have a poor rate of return relative to index funds) when we let them "invest" in things that are guaranteed losses on average.
- abduhl 1y ago
  This is just your gambling addiction showing itself. There may not be any potential gains in value after the transaction. In fact, most take privates result in massive up front losses for the new owners. And anyways, shareholders are paid a premium on today’s stock price (which theoretically reflects the current value of future profits, or at least the market’s view on it) in order to compensate for the exact loss you mention.
- zaptheimpaler 1y ago
  It would be nice to have more diversity in models of ownership and profit-sharing widely used in the market. Like Meta's split between voting shares and non-voting shares which lets them keep control of the company but let shareholders participate in the economic gains. There could be other models, like what if any single person could only own X shares and voting shares were only allowed to be bought by/on behalf of individuals not companies. Maybe models of ownership where the executives don't have a fiduciary responsibility to maximize profit and instead have more latitude on how they choose to run it.
- chii 1y ago
  > lose any potential gains in value after the transaction. the premium paid over the market price takes that into account.
  - baxtr 1y ago
    Only to a degree ofc. Otherwise, there would be absolutely no sense in buying up that company.
    - chii 1y ago
      > no sense in buying up that company. if the new buyers think the old owners have a lower expectation of future earnings than them, then the buy makes sense.
    - mortsnort 1y ago
      Often the buying company brings synergies from their own company that unlocks extra value (in theory).
    - LittleCloud 1y ago
      I happen to be a shareholder in EA as part of a diversified portfolio. Not that my vote matters but I'll definitely be taking PE money. +20% in one day is nothing to sneeze at. From the other comments about EA's games, it's not like EA is that special of a company. There's always going to be some other company (not necessarily an AAA-games maker) worth putting your capital in and end up doing as well as what the hypothetical EA could do if it were not taken private. (Obviously finding such market-outperformer isn't easy but by the same argument I'm not convinced that EA would be obviously that outperformer either.)
- shalmanese 1y ago
  They are also shielded from any losses. The stock price is meant to reflect the market consensus on the net present value of all time-discounted future cashflows. If you feel the stock will certainly gain in the future, you should purchase the stock now and if enough people believe that, the stock now will reflect the future gain.
- gdulli 1y ago
  Another immediate consequence is that it's a forced/unplanned taxable event. Which may or may not be an inconvenience to someone's planning.

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
    - cudgy 1y ago
      True. Average people are sophisticated enough to understand complex financial instruments designed to scam them by an army of lawyers and MBAs trained at the finest financial institutions and law schools.
      - derektank 1y ago
        How does having a net worth of $1M or an annual income of over $200K inure you to being scammed by complex financial instruments? Also, we already let people engage in sports gambling (which is guaranteed to result in a net loss) and cryptocurrency speculation, (which is a zero sum game). I'd rather give people more options to invest in financial instruments that at least in theory have the potential to be positive sum, since we're not going to ban either of the other two any time soon.
        cudgy 1y ago
        Your examples of cryptocurrency and sports gambling are a perfect example of my criticism. There are virtually no people that are sophisticated enough to succeed in either of those activities as they are all based on pure speculation and luck. There is no actual asset in either of these cases. While some modern crypto coins might be back with actual assets, many crypto coins are backed by only speculation and no actual assets. Basically they’re scams.
        derektank 1y ago
        Yes, that was my point. Both are scams, but both are very legal. It seems dumb to bar people from investing in real, productive assets (even complex ones that might have a poor rate of return relative to index funds) when we let them "invest" in things that are guaranteed losses on average.
abduhl 1y ago
This is just your gambling addiction showing itself. There may not be any potential gains in value after the transaction. In fact, most take privates result in massive up front losses for the new owners. And anyways, shareholders are paid a premium on today’s stock price (which theoretically reflects the current value of future profits, or at least the market’s view on it) in order to compensate for the exact loss you mention.
zaptheimpaler 1y ago
It would be nice to have more diversity in models of ownership and profit-sharing widely used in the market. Like Meta's split between voting shares and non-voting shares which lets them keep control of the company but let shareholders participate in the economic gains. There could be other models, like what if any single person could only own X shares and voting shares were only allowed to be bought by/on behalf of individuals not companies. Maybe models of ownership where the executives don't have a fiduciary responsibility to maximize profit and instead have more latitude on how they choose to run it.
chii 1y ago
> lose any potential gains in value after the transaction. the premium paid over the market price takes that into account.
- baxtr 1y ago
  Only to a degree ofc. Otherwise, there would be absolutely no sense in buying up that company.
  - chii 1y ago
    > no sense in buying up that company. if the new buyers think the old owners have a lower expectation of future earnings than them, then the buy makes sense.
  - mortsnort 1y ago
    Often the buying company brings synergies from their own company that unlocks extra value (in theory).
  - LittleCloud 1y ago
    I happen to be a shareholder in EA as part of a diversified portfolio. Not that my vote matters but I'll definitely be taking PE money. +20% in one day is nothing to sneeze at. From the other comments about EA's games, it's not like EA is that special of a company. There's always going to be some other company (not necessarily an AAA-games maker) worth putting your capital in and end up doing as well as what the hypothetical EA could do if it were not taken private. (Obviously finding such market-outperformer isn't easy but by the same argument I'm not convinced that EA would be obviously that outperformer either.)
shalmanese 1y ago
They are also shielded from any losses. The stock price is meant to reflect the market consensus on the net present value of all time-discounted future cashflows. If you feel the stock will certainly gain in the future, you should purchase the stock now and if enough people believe that, the stock now will reflect the future gain.
gdulli 1y ago
Another immediate consequence is that it's a forced/unplanned taxable event. Which may or may not be an inconvenience to someone's planning.