Going Private Transaction Case Study

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Privatization, often referred to as a GPT “Going Private Transaction”, can generally refer to a transaction or a series of transactions to change the ownership of a company from public to private. Thus, the previous public traded company becomes privately owned afterwards. It is the reverse process of the often better-known company’s going public.

Going private sometimes is also referred to as delisting. Because if the company itself is engaged in one of these transactions, it results in a portion of equity to be seen as delisted. In this situation

Delisting can be categorized as either voluntary or involuntary(Macey 2008). In the situation of involuntary delisting, the company may be acquired by another company; Or it meets compliance problems or financial distress so that going private is the …show more content…

For example, in Lehn and Poulsen(1989)4, they find the undistributed cash flow along with low growth expectations is a significant indicator of going private.

2.2.2 Undervaluation Theory
One anecdote is that poor stock performance is a critical contributor to take a company private. This theory explains the relatively low market-to-book value ratios may contribute to corporate’s decision to go private. It is probable that the corporate seeks to relist itself later at a fair price.

In the paper of Renneboog (2007)5, he observes higher offer premia are observed in management buyout(MBO) than other transactions, which is consistent with the assumption that mangers as insiders,

In real life, from March 2011, twenty-four Chinese companies listed on US saw the designation of audit personnel or involving in accounting scandals. Among them, 19 were punished by SEC. This series of information has caused confidence crisis of Chinese firms as a whole. Listed Chinese companies’ valuation and price of equity have greatly retreated. Some of them went private

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