Taking a public company private is a strategic move that involves delisting the company’s shares from a stock exchange, essentially removing it from public trading and ownership. This decision can be driven by various factors, ranging from financial considerations to strategic objectives. The most recent case in Malaysia saw the share price of Berjaya Food Bhd (BFood) surged last week on a Bloomberg news report that its controlling shareholder Tan Sri Vincent Tan could be taking it private. BFood is the company that owns Starbucks Malaysia has been negatively impacted by the boycott on American owned companies since war started in Gaza. As a result, BFood share price dropped 25% from its peak. Controlling shareholders typically privatise the company when they feel the market is not giving it the right valuation.
Several high-profile public listed companies have undergone the process of going private throughout history. Here are a few notable past privatisation::
Dell Inc.:
In 2013, Michael Dell, the founder and CEO of Dell Inc., along with Silver Lake Partners, took the company private in a deal worth approximately $24.9 billion. The move was aimed at restructuring the company away from the scrutiny of public markets and focusing on a long-term strategy, including diversification beyond personal computers into enterprise solutions and services.
Heinz:
In 2013, Berkshire Hathaway, led by Warren Buffett, and 3G Capital acquired H.J. Heinz Company in a deal valued at $28 billion, taking the iconic food company private. The acquisition allowed the new owners to implement operational improvements and cost-saving measures away from the public spotlight.
Toys “R” Us:
In 2005, a consortium consisting of Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co., and Vornado Realty Trust took Toys “R” Us private in a deal worth $6.6 billion. However, the company struggled with debt and filed for bankruptcy in 2017, leading to liquidation of its stores.
Hilton Hotels Corporation:
In 2007, the Blackstone Group acquired Hilton Hotels Corporation in a leveraged buyout valued at approximately $26 billion, making it one of the largest private equity deals at the time. The move allowed Hilton to focus on long-term growth strategies away from the constraints of public markets.
Let’s explore some other reasons why an owner of a public listed company might want to take their company private.
1. Reducing Short-Term Pressures:
Publicly traded companies are subject to quarterly earnings reports and shareholder expectations. This can create pressure to prioritise short-term results over long-term strategic goals. By going private, the company can focus on its long-term vision without the constant scrutiny of Wall Street.
2. Flexibility in Decision-Making:
Public companies are accountable to a wide range of stakeholders, including shareholders, analysts, and regulatory bodies. This can sometimes limit their ability to make bold or unconventional decisions. Going private allows the company’s management and owners to make decisions based on long-term interests rather than appeasing short-term market demands.
3. Cost Savings:
Maintaining public company status comes with significant costs, including compliance with regulatory requirements, legal fees, and investor relations expenses. Going private can eliminate or reduce these costs, improving the company’s bottom line.
4. Access to Capital:
Paradoxically, while public companies have access to public markets for raising capital, going private can offer more direct access to capital. Private investors, including private equity firms or wealthy individuals, may be willing to inject capital into the company without the need for lengthy regulatory filings or shareholder approvals.
5. Long-Term Value Creation:
Public markets often focus on short-term performance metrics, which may not align with the company’s long-term growth strategy. Going private allows the company to implement strategic initiatives that may take years to materialize without the pressure of immediate shareholder reactions.
6. Avoiding Hostile Takeovers:
Publicly traded companies are vulnerable to hostile takeovers from competitors or activist investors looking to gain control of the company for their own interests. By going private, the company can shield itself from these external threats and maintain control over its destiny.
7. Alignment of Interests:
In some cases, the interests of the company’s management and shareholders may not align. Management may believe that the company’s true value is not reflected in its stock price and may seek to take the company private to align ownership and management interests more closely.
8. Strategic Restructuring:
Going private can provide the company with the flexibility to restructure its operations, divest non-core assets, or pursue mergers and acquisitions without the need to disclose sensitive information to competitors or the public.
9. Enhanced Privacy and Confidentiality:
Public companies are required to disclose a significant amount of information to the public, including financial performance, executive compensation, and strategic plans. Going private allows the company to operate with greater privacy and confidentiality, protecting sensitive information from competitors.
10. Ability to Implement Controversial Strategies:
Some strategic initiatives may be controversial or unpopular with public shareholders but necessary for the long-term success of the company. Going private can provide the company with the freedom to implement these strategies without the fear of shareholder backlash.
While the decision to take a public company private is not one to be taken lightly, it can offer significant benefits for the company and its stakeholders. By reducing short-term pressures, gaining flexibility in decision-making, and aligning interests more closely, the company can focus on long-term value creation and strategic growth. However, it’s essential for company management and owners to carefully consider the implications of going private and ensure that it aligns with the company’s overall objectives and long-term vision.
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