If a company I own stock in decides to “go private”, e.g. sell to a private equity firm for $X per share, what forces all stock owners to abide by this decision?
Is there a clause in the stock purchasing agreement that says something like “under certain conditions you will be forced to give up your stocks for a price specified by us, and that price will be non-negotiable”?
Years ago, I inherited stocked from my grandfather for Ozark Airlines (although if you reverse the letters in the name, it better reflected the true nature of the airline). When they were bought out by TWA in 1986, I was required to sell their stock.
WAG: The stock becomes worthless.
Generally, selling or taking a public company private requires the approval of the shareholders. Assuming that you own only a very small percentage of the outstanding shares, your vote doesn’t matter. In practice, to take your company private you first get your hands on a majority of the shares (if you don’t already hold a majority). Then you have control of the company and can do what you want (within the law and SEC regulations, of course).
If the agreement is made to take it private (or to be sold to another company for some combination of cash or shares), your shares will be bought or converted, whether you want to sell them or not. Do nothing, and one day your brokerage account will no longer have those shares, it will have the cash or shares in the acquiring company. If you are holding directly from the company, you will receive a letter, and eventually, a check. If you are holding a certificate, you will probably be requested to send it in. If it’s a stock swap, you’ll be able to get a certificate for shares in the acquiring company. As noted above, you CAN vote against the buyout as a shareholder, but by the time most buyouts are put to a vote, the key players usually have their ducks in a row and will get enough votes to approve it.
This recently happened to me. The stock is delisted on the day the company is taken private, after that it can no longer be traded. After that, you are mailed the paperwork needed to tender your shares (yep, it was the only stock I owned that I actually held share certificates for) and a few weeks after that I received a check for the value of the stock at the buyout terms. I don’t remember the exact deatils of what would happen if I didn’t tender my shares, but what’s the point? The stock can’t be traded so you may as well get your money. The only thing I really didn’t like was that it created a tax liability for me that I didn’t plan on.
Polerius, if this is happening to you, if you need fast access to the funds you may want to consider selling your shares when the stock is still trading (if it is close to the buyout price, and it probably will be) in order to avoid the delay of waiting for a check and then waiting for that check to clear your local bank. For me, not having the funds in a money market account for three weeks cost me a bit of money, but not as much as the 1% loss as I would have taken had I sold before the buyout. Had the stock been held in a brokerage account, the funds may have been available to me faster, but I’m not sure about that. Something to think about.
This happened to me recently as well. I was given shares of stock as a birth present 33 years ago. I always though they went poof years ago but I was contacted by an investigation agency a few months ago about them. I live 2000 miles from my birth place now and they had started their search by locating any family members they could find to locate me. A few weeks ago, I got another very offical call about my oustanding shares with information about what needed to happen. They mailed me a redemption packet telling me how I needed to cash in my stock because of its upcoming change to private status. They didn’t like that I waited a couple of days in sending in my forms because more phone calls kept coming. I decided to gove in and mailed in my redemption paperwork.
That is why you don’t want to wait when you personally own 6 shares of a well-known company. They will find you decades later to give you your $225 so that the merger won’t be thwarted.
This happened to me recently with my shares of Safenet (used to be SFNT). They basically needed 51% of the shareholders to tender their shares by a certain date which they did.
The shares disappeared form my brokerage account and were replaced by cash at the agreed upon per share price.
Under most U.S. state corporate laws, there are a number of transactions by which a minority shareholder may be forced to give up his or her shareholdings in exchange for cash and/or other consideration. For instance, a company could “go private” by merging with a newly formed company owned by the “private” owners with the public shareholders getting cash for their shares.
Assuming the transaction is done in compliance with the applicable law (including shareholder approval where required), an individual shareholder will be unable to prevent cancellation of their shares. The shareholder will, however, often have the right to legally challenge the fairness of the consideration that they will be getting in a court proceeding under the law of the jurisdiction the company was incorporated in. If the shareholder takes the time and trouble to sue and obtains a finding that the consideration was unfair, he or she may be able to get more.
This type of litigation is not uncommon where owners of small companies are trying to freeze out minority shareholders. However, as a practical matter, for large, public companies, this litigation is not generally thought worthwhile because the companies will usually take the necessary steps to have appropriate evidence of fairness under the relevant legal standard.
I do not represent you, and my post is a general description of the law in the area, not advice tailored to your situation. If you have specific questions, please contact a lawyer of your own.