How Privatization Influence a Company’s Shareholders?

By Advisorymandi
11-August-2018 8:26:54 AM

Last time when we heard, Elon Musk’s tweet, “Am considering taking Tesla private at $420. Funding Secured.” Shocked a lot of people and make them believe that it was a weed joke. Who thought that Elon Musk was dead serious about taking the company to the private to the public. And then one thing lead to another and another. In just a few seconds, the news went viral and spread through the financial system with the speed of light. People couldn’t think of anything. After all, even it is like an impossible task for someone like Elon Musk who is reputed for defying the odds.

Most small investors heard of transitions from private to public sector through an initial public offering (IPO) where a private company goes public by issuing shares. However, the transitions from public to the private sector also occur. But, not all investors are familiar with this stock market term. When a company decides to go for privatization, there are a lot of reasons behind it. But it often occurs when a company not well-appreciated and heavily undervalued in the public market.

Unlike going to the public from private, the process of making a public company private is rather simple and involves very few regulatory hurdles than the private to public transition. For starters, the private group will make an offer to the company and its shareholders. The offer will specify the price which the group willing to pay for the company’s shares.

Once the majority of shareholders voted to accept the offer, shares of the company are sold to the private bidder and the company becomes privately held.

But, there is one thing which is very difficult to do in this process. Which is, “Getting the acceptance of the company’s shareholders”.

Shareholders acceptance is what needed to accept the offer in order for the transition to be completed. If they accept it, the company’s buyer will pay a consenting group of shareholders the purchase price for each share they own.

But, there is a substantial amount of benefit for investors when the public company to go private since the private group usually offers a substantial premium for the shares compared to the current market value.

Some of the most famous companies in the world that have gone from public to private are Dell Computer, Heinz, and Hilton. In most cases, the shareholders are well compensated for their shares.


Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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