Cambridge AS A Level Business Studies/ ZIMSEC Advanced Level Business Studies/ Business Enterprise Skills Notes: Going Private 

  • We have already looked at what it means to go public
  • Going private is the opposite of that
  • Going private is when a company goes from being a public limited company whose shares are available for public trade is converted back into a private limited company whose shares are closely-held
  • The process can take many forms but it usually involves a series of transactions where the firm buys back its shares from the public
  • This is normally done by the major shareholders who may or may not be the founders
  • A business may also go private as part of a hostile takeover where a predatory firm buys a controlling stake
  • It might also involve a private equity firm buying a controlling stake in the company
  • In a management buyout, the management of the company conspire to take it public by buying out all the dissenting smaller shareholders
  • Often the management is made up of the original founders of the business who may be disillusioned by the pressures of running a public limited company
  • An example is that of the popular computer maker Dell Inc which went private in 2013
  • Going private can also be in the form of a tender offer where a larger entity might offer to purchase some or all of shareholders’ shares in a corporation

Reasons for going private

  • The most cited reason for going private is to wrest back control of the business. As a company’s shares are publicly traded a public company’s ownership may become fragmented making decision making difficult especially in cases where the consensus and input of shareholders is required
  • To thwart takeover threats- since shares of public companies can be bought by anyone it is possible for rivals to snap shares and eventually wrest control
  • To avoid the red tape and pressures associated with operating a publicly-traded company. Public opinion, investors and financial press might exert pressures that might make management bulk from implementing longterm measures that might prove beneficial in the pursuit of short term goals. Going private will thus allow the company to focus on long-term strategies free of such burdens
  • To avoid administrative burdens and costs associated with listing on a public exchange. Some regulations e.g. restrictions the nature and class of shares a company can issue can be too limiting and not in the company’s interests

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