Going Private in UK and US. Differences and ... / ID: 577082

Author: hameleons (5)

Evaluation:

Published: 02.04.2006.

Language: English

Level: College/University

Literature: 78 units

References: Used

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Table of contents

Nr.	Chapter	Page.
	Table of Contents	II
	List of Abbreviations	V
1.	Introduction	1
1.1	Definition	2
1.2	Difference between Going Private and Going Dark	3
1.2.1	Definition of Going Dark	3
1.2.2	Over-the-counter Markets in the U.S. and the U.K.	4
1.2.3	Similarities and Differences between Going Private and Going Dark	7
2.	Trends: IPO’S Vs. Going Private	9
3.	Going Private Activity in the U.S. and U.K.	11
3.1	The History of Public to Private Activities	11
3.1.1	U.S. Public to Private Activity	11
3.1.2	UK Public to Private Activity	12
3.1.3	Continental European Public to Private Activity	12
3.2	Companies that went private in the last few years	15
3.3	The Sarbanes Oxley Act affecting the U.S. Going Private Activity	16
3.4	Corporate Governance Guidelines in the U.K.	19
4.	Candidates for Going Private Transactions	22
5.	Reasons for Going Private	23
6.	Benefits of Going Private	24
7.	Risks of Going Private	26
8.	Transactions to Reduce Shareholders	27
8.1	A Cash Out Merger	28
8.1.1	Statutory Merger	28
8.1.2	Stock Acquisition	29
8.1.3	Different Company Structures	30
8.1.3.1	Horizontal Mergers	30
8.1.3.2	Vertical Mergers	30
8.1.3.3	Conglomerate Mergers	30
8.1.4	Mergers in the U.S.	31
8.1.5	Mergers in the U.K.	31
8.2	A Tender Offer	32
8.2.1	Tender Offers in the U.S.	33
8.2.2	Tender Offers in the U.K.	34
8.3	A Reverse Stock Split	34
8.4	Management Buyouts and Leverage Buyouts	35
8.4.1	Management Buyout	35
8.4.2	Leveraged Buyout	35
9.	Delisting	36
9.1	General Information	36
9.2	Delisting in the U.S.	37
9.2.1	Definition of the New York Stock Exchange	37
9.2.2	Delisting at the New York Stock Exchange	37
9.3	The NASDAQ	38
9.3.1	Definition of the NASDAQ	38
9.3.2	Delisting at the NASDAQ	39
9.4	Delisting at the London Stock Exchange	39
9.4.1	Definition of the London Stock Exchange	39
9.4.2	Delisting at the London Stock Exchange	40
10.	Reporting Issues to the Relevant Authorities	42
10.1	Deregistration at the Securities and Exchange Commission	42
10.1.1	Definition of the Securities and Exchange Commission	42
10.1.2	Deregistration at the Securities and Exchange Commission	43
10.2	The Financial Services Authority	46
10.2.1	Definition of the Financial Services Authority	46
10.2.2	Information to the Financial Services Authority when Going Private	47
10.3	Secondary Listing	47
10.3.1	Cancellation of a Secondary Listing at a U.S. Stock Exchange	48
10.3.2	Cancellation of a Secondary Listing at the London Stock Exchange	48
11.	Fiduciary Duty Issues	48
11.1	Class Action Securities Litigation	49
11.2	Entire Fairness	50
11.3	Duties of Care and Loyalty	51
11.4	Special Committees	51
11.5	Hiring of Legal and Financial Advisors	53
11.6	Revlon Duties	53
11.7	Summary of Fiduciary Duties	54
12.	Protection of Shareholders	56
12.1	Protection of Shareholders in the U.S.	56
12.1.1	Rules against False and Misleading Information	56
12.1.2	Disclosure Issues	57
12.2	Information Disclosure in the U.K.	59
13.	The Enron Scandal	61
14.	Limitation	62
15.	Conclusion	62
	References	IV

Extract

Founded in 1982 and based in Massachusetts, Webhire Inc. makes Web-based software for companies to manage their hiring processes. Even though the company delivered financial information that showed consecutive quarters of positive cash flows and sales of approximately $14 million, Webhire’s stock was trading at 50 cents on NASDAQ. The company’s main objective to become public was to attract investors, but with a low trading stock price and depressed market cap it was causing exactly the opposite effect. After observing such results and adding annual costs of $400,000, which were necessary to meet stock exchange requirements and comply with all regulations required for public companies, and to pile it up, the new Sarbanes – Oxley regulations passed in the U.S. that would only make this process more time consuming and expensive, executives got tired of venturing in the open market and decided to deregister, this was the company’s first step towards going private. (Prince)

The deregistration process1 was completed in 2003 and the company was able to enjoy the benefits of their decision. Webhire’s CEO Susanne Bowen commented “Not only did we achieve significant cost-savings, but we’ve also had the opportunity to enjoy the positive impact on cash flow and focus our team on what we need to do to grow the business.” (Prince)

Just like this U.S. based company there are many other companies world wide facing different situations and scenarios, which has private companies seriously thinking if an Initial Public Offering or IPO is really that attractive and the best solution for their capital needs as well as public companies, like Webhire Inc., which have decided that the costs of remaining public outweigh the benefits.

Throughout this research paper we intend to explore and understand the background, magnitude and tendencies of this trend, as well as find the key differences in the strategy, process and legal aspects of the going private transaction between the U.S. and U.K.
The first level of the graph shows listed companies which are publicly owned and are traded on different stock exchanges such as the National Association of Securities Dealers Automated Quotation (NASDAQ), the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE), etc. These firms are called public companies. These companies have a duty to fulfill different financial and reporting requirements of the stock exchanges and controlling institutes like the Securities and Exchange Commission in the U.S. and the Financial Services Authority (FSA) in the U.K.

The third level shows companies which have decided to go private. The ownership of private companies becomes concentrated in the hands of a few large stockholders and the stocks are no longer publicly traded or quoted. The reasons and the strategies for companies to go private will be addressed in the following chapters.

Between the first and the third level of the previous graph there are many firms that prefer or are forced to go dark. In this case a company voluntarily withdraws its securities from listing and trading on an exchange or its securities are ceased to be eligible for listing because the company has failed to meet the exchange´s continuing listing requirements. After delisting the company´s securities continue to be traded in the OTC market, which sometimes is also called unlisted market or off-board market.…

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