Off the Street

Stricter rules and wary investors are prompting more companies to exit the public markets.

Tender Offer and Merger. Tender offers are common when there is a need for speed, since they can close in 20 business days (rather than the three months or more for the merger proxy-vote process). Tenders can be used to gain majority control to ensure a smooth merger process, but this can require a pricey bridge loan until the post-tender merger closes. Tenders are more common when management’s goal (and often a condition of the offer) is to gain the 90 percent of shares needed to execute a short-form merger.

Reverse Stock Split. Also known as ‘the squeeze out.’ A rare technique used in small companies where the majority of shares are closely held by a few controlling shareholders. The split is engineered to leave minority shareholders holding fractional shares, which are paid out in cash. The goal, typically, is simply to eliminate public reporting requirements (and those shareholders), rather than to recapitalize the company.

Asset Disposition. Acquisition companies purchase all of the company’s assets through a planned liquidation that returns funds to shareholders. Although not typically thought of as a going-private transaction, the effect can be similar if management purchases some of those assets with outside funding.

Sidebar: Wanna Buy Your Company?

In this era of intense investor scrutiny, everyone from private equity advisers to CFOs is circumspect about the personal payout that comes with a buyout. ‘The CFO is a fiduciary of the company, and ought not to be directing the company to where his best personal interests lie,’ warns attorney John LeClaire of Goodwin Procter. But make no mistake: taking a company private can be the most lucrative move of a CFO’s career.

In fact, CFOs who take their companies private often wind up with a 1 to 3 percent equity stake and a key role as liaison with the bank and equity investors. ‘It can be a great outcome for the CFO,’ concedes LeClaire. Along with the payout that comes when the firm exits, the CFO of a successful effort can expect to be tapped by private equity firms to repeat that performance elsewhere.

Of course, personal interests aren’t always financial. CFO John Henderson and the executives of Genesee Corp. orchestrated a buyout of the company’s brewery after a sale to outsiders fell through. Rochester, New York, natives all, their move saved the 125-year-old hometown institution, and 400 jobs that went with it. As if that weren’t satisfying enough, they’re also now owners of Genesee Cream Ale — something of a fabled label in the Northeast. Recalls Henderson, ‘We had a couple to celebrate the event.’

Chart: Going Private – Deals are steadily increasing

    Year        Number of Deals

    2003*       93
    2002        316
    2001        282
    2000        197

*As of 4/1/03
Source: Mergerstat

Chart: Market Movers

Not all market defectors are small companies.

    Year      Company                   Size of transaction

    2003      Ameripath*                  $839.4 million
    2003      Dole Foods                     $2.5 billion
    2003      National Golf Properties   $1.1 billion
    2002      Herbalife International   $685.0 million

Source: Scott Larson, National-Louis University


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