Does Going Private Create Problems For Companies?

by | Jul 17, 2008 | Stock Market Comments

In the coming months and years, you will hear more publicly traded companies than ever before discussing the idea of GOING PRIVATE.  Even with the mortgage mess, there is STILL access to capital.

Management often gets fed up trying to build long term businesses and gain market share on a long term basis, while struggling with delivering earning reports to analysts and shareholders every 90 days.  And a fair amount of companies have been “hung out to dry” in recent times, because they have had to expose their current financial situations.  I suspect there were many days where Bear Stearns wished they were a privately held company.  There have been headlines in recent days of Lehman Brothers discussing going private.

Think about this: when a company “goes public” they are selling shares.  They want to get the best price for their company stock — a price that represents the equity value of the company.   But they also want to promote the optimistic future that lies ahead.

But the point remains: they are selling shares.  If you owned a successful business, and didn’t need the money, why would YOU sell?

So, why would a company go private?  One reason may be because they want to eliminate a nasty owner…in this case, you, the shareholder.  Remember, when the shareholders go away, the analysts are also gone.  CNBC is gone.  The New York Times is gone.  60 Minutes is gone.  For some companies, that sounds appealing.  Or perhaps a company wants to fend off a potential takeover (take-under?).

But ultimately management feels this is a good time to BUY.  After all, the concept is to buy low, sell high, right?

If you were in the market in the 1980’s, any time talk of a company getting taken over meant huge leaps in the stock price.  Sadly, this time around — any talk of going of private will likely mean buyouts at low prices, not higher.

What companies do you think may discuss going private?