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ID number:577082
Published: 02.04.2006.
Language: English
Level: College/University
Literature: 78 units
References: Used
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  Horizontal Mergers    30  Vertical Mergers    30  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

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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