Why Public Companies Remove Their Shares from Stock Exchanges to Become Private Companies

Why do some public corporations choose to go private and remove their shares from the stock exchanges? On October 29, 2013, Dell announced that Michael Dell, founder and CEO, and Silver Lake Partners, a leading global technology company completed the acquisition of Dell’s outstanding shares. Michael Dell said he can focus on building the business, “not on the 90-day clock” of continually worrying about profits. Additionally, privatization will give your business the “time, investment, and patience” to progress. In fact, they progressed. And five years later, Michael Dell plans to go public with Dell again, to begin with!

Public corporations go private for a long-term approach

Many public corporations choose to be on a profit treadmill to satisfy Wall Street’s appetite. They believe they must publicly provide quarterly earnings estimates (guidance) or their shares will not trade at their optimal values. So they focus on next quarter earnings and they better be accurate. Otherwise, traders in the stock market could crush your stocks.

Bring Walmart. On Wednesday, October 14, 2015, its CEO announced that earnings would be reduced in the next fiscal year due to specific spending to position the company for growth. The shares fell 10%, the steepest drop in a day in 25 years. director Doug McMillon he told an investor meeting in New York, “We can achieve stronger financial performance in the short term simply by better managing our core business, but that will not be enough.”

Almost three years later, the shares recovered; Today, the shares are significantly higher, which shows that the CEO is right. TO McKinsey Company The 2006 study shows that the quarterly earnings guide does not provide the benefits claimed by corporations and is not worth the costs of providing them:

“Our analysis of the perceived benefits of issuing frequent earnings guidance found no evidence that it affects valuation multiples, improves shareholder profitability, or reduces share price volatility. The only significant effect we observe is an increase. in trading volumes … “

Other reasons for a company to go private include less scrutiny of results by the public, more flexibility, a sharper and more consistent focus on the long term by management.

Dell plans to become a public corporation … again!

Ironically, after five years, Michael Dell plans to take the company public again. Why would he do that? What has changed? As a private company, Dell acquired tech giant EMC in September 2016 for $ 67 billion. Unlike Dell, which was primarily in the hardware, EMC was primarily in the software. After the acquisition, Dell changed its name from Dell Computer to Dell Technologies to signal the hardware change. If Dell were a public company, analysts would examine it in depth, some would criticize and generally distract Dell’s management.

Clearly, Michael Dell and his partners are keen to capitalize on Dell’s higher valuation from building the business over those five years. It will be interesting to see if Dell chooses to go back to the quarterly earnings grind or stay away like Warren Buffet and other executives.

Making a public corporation private can be expensive. However, being private can give homeowners time to restructure without distraction from outsiders. Close scrutiny by myopic analysts could result in unhelpful comments that might require thoughtful but unnecessary responses. Unfortunately, Wall Street is solely focused on making money today, not on the long-term viability of the public corporation.