If I reject the tender offer for acquisition of the stock that I own in a company and the company goes private, what happens to my stock?

By Rob Renaud AAA
A:

Since the passing of the Sarbanes-Oxley Act, a significant number of public companies have chosen to go private. The reasons why companies make this choice are as varied as the companies themselves, but the cost of being publicly traded and having to comply with SEC regulations is often cited as a reason for privatization. (For further reading, see Policing The Securities Market: An Overview Of The SEC.) If you're a shareholder in a company that is going private, there are a few things you should know before you think about rejecting the tender offer.

Tender offers are usually made to shareholders at a premium from current share prices. If you're a shareholder in a company that is going private, and there's a tender offer out on your stock, you may stand to gain substantially by selling the stock. Though there isn't a set premium that acquirers hoping to take a company private are required to pay, shareholders can reasonably expect to get a 10% premium over the market price by selling their stock to offerers - sometimes much more.

Unless you hold a substantial block of shares of a prospective private company's stock, rejecting a tender offer is probably not a smart move. Without a substantial block of shares, your influence on management is insignificant, to say the least. Furthermore, your shares will become less and less liquid as the market for trading the company's stock becomes thinner. The effect on you, as a single shareholder with a relatively small position, will almost certainly be difficulty in selling the stock. Eventually, the stock may become so illiquid that you could end up taking any offer at all to sell your stock after fighting to receive a higher price when the tender offer was made.

If you're really upset that the company in which you've invested is going private, you may elect to challenge the proposed transaction in court - but you must have reasonable grounds for the challenge. Of course, the financial burden of bringing a challenge to court rests on the dissenting shareholder. If the company's lawyers see that they can make the challenge economically difficult for a dissenter, they may choose to drag the challenge out in court. Remember that corporate lawyers and corporate accountants command very high fees for their time.

To learn more, see How does privatization affect a company's shareholders?

RELATED FAQS

  1. Are there any risks involved in trading put options through a traditional broker?

    Explore put option trading and different put option strategies. Learn the difference between traditional, online and direct ...
  2. What's the difference between primary and secondary capital markets?

    Learn how in the primary capital market, securities are issued for the first time, while in the secondary market, investors ...
  3. What are the main benchmarks that track the forest products sector?

    Learn how the net debt to EBITDA ratio, EBITDA to interest ratio and debt to capital ratio financial benchmarks are used ...
  4. Are secondary capital markets beneficial for society, or are there purely speculative?

    Learn why secondary bond markets are essential for both the capital market and economy. Explore the reasons they must be ...
RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Asset Valuation Review (AVR)

    A process that establishes an estimate of the value of a failed ...
  3. Assisted Merger

    The merger of two or more financial institutions undertaken with ...
  4. Assuming Institution

    A healthy financial institution that purchases the assets of ...
  5. Acquisition

    A corporate action in which a company buys most, if not all, ...
  6. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...

You May Also Like

Related Articles
  1. Stock Analysis

    Breaking Down the Halliburton Baker ...

  2. Brokers

    Key Differences Between M&A Advisors ...

  3. Trading Strategies

    Selecting Mergers & Acquisitions Advisories ...

  4. Investing

    M&A Advisory Business Boutiques: How ...

  5. Investing

    The Top Reasons Why M&A Deals Fail

Trading Center