Quick definition of Go-private merger
A go-private merger is a transaction in which a publicly traded company is taken private, often by its management or a private equity firm. In this process, shares of the company are bought back from shareholders, thereby delisting the company from public stock exchanges. This approach is typically pursued to allow the company to operate with greater flexibility and to implement long-term strategies without the pressures of quarterly earnings reports.
Let’s into the Go-private merger origin
When we talk about go-private mergers, we often reflect on the evolution of corporate finance and the complexities of operating as a public entity. The term gained popularity in the late 20th century as private equity firms began acquiring public companies and taking them off the stock market. This strategy allows the acquired companies to restructure and focus on long-term growth strategies free from the scrutiny of public investors. The rationale behind such mergers typically includes reducing operating costs, improving operational efficiencies, and avoiding the volatility that comes with public trading. As the business landscape continues to evolve, so does the relevance of go-private mergers in our discussions about corporate strategy and funding.
The Go-private merger (full & serious definition)
A go-private merger is a type of transaction where a public company is acquired by its controlling shareholders or a third party, resulting in the company being delisted from the public stock exchange and ceasing to be subject to federal disclosure and proxy requirements. This process transforms the company from a publicly traded entity to a closely held or private entity.
Structure of a Go-Private Merger
#One-Step Merger
In a one-step merger, the public company merges directly with its acquirer, typically a closely held corporation or an acquisition vehicle controlled by the acquirer. This structure requires a stockholder vote and involves filing a proxy statement with the Securities and Exchange Commission (SEC) detailing the transaction and its terms [1][3].
#Two-Step Tender Offer
The two-step tender offer involves two distinct phases:
1. Tender Offer: The acquirer makes a direct offer to public shareholders to acquire their shares, often conditioned on acquiring at least a majority of the target’s common stock upon the close of the tender offer [2][3].
2. Back-End Squeeze-Out Merger: If the acquirer holds sufficient shares (typically 90% or more), it can complete a back-end squeeze-out merger without needing a stockholder vote. This merger acquires all remaining shares, effectively delisting the company from public markets [2][3].
Key Considerations
1. Disclosure Obligations: Going private transactions are subject to extensive disclosure requirements under Rule 13e-3 of the Securities Exchange Act of 1934. This includes documentation of all stages of the transaction, which may eventually be publicly disclosed [2][3].
2. Fiduciary Duties: The company’s board of directors must navigate fiduciary duties carefully, often creating a special committee composed entirely of independent and disinterested directors to consider and negotiate the transaction with the acquirer [2][3].
3. Risk of Litigation: Going private transactions are commonly challenged by stockholder plaintiffs, particularly on claims of breach of fiduciary duties. The company must be prepared for potential litigation risks and ensure that the transaction is structured with appropriate safeguards [3].
4. Financial Considerations: Many going private transactions involve significant amounts of debt, with the assets and cash flows of the acquired company used to pay for these debts [4].
Importance in Mergers and Acquisitions
Understanding the go-private merger is crucial in M&A for several reasons:
– Avoidance of Public Disclosure Obligations: Companies may choose to go private to avoid rigorous public company disclosure obligations and onerous compliance requirements [2].
– Control and Flexibility: Going private allows the control group to regain control over the company, eliminating risks associated with public company operations such as hostile takeover threats and shareholder lawsuits [1].
– Restructuring Opportunities: The control group can capitalize on restructuring opportunities when market prices are depressed compared to asset values, providing flexibility in managing the company’s operations and finances [1].
In summary, a go-private merger is a strategic transaction that transforms a public company into a private entity, offering control and flexibility to the acquirer while navigating complex legal and financial considerations.
References
[1] Vedder Price. (2000). The Going Private Solution.
[2] Winston & Strawn. (2024). Going Private Post-DeSPAC—Strategies and Considerations.
[3] Wachtell, Lipton, Rosen & Katz. (2019). Going Private Guide 2019.
[4] Investopedia. (n.d.). Going Private: Definition, How It Works, Types and Example.
In a one-step merger, the public company merges directly with its acquirer, typically a closely held corporation or an acquisition vehicle controlled by the acquirer. This structure requires a stockholder vote and involves filing a proxy statement with the Securities and Exchange Commission (SEC) detailing the transaction and its terms [1][3].
#
Two-Step Tender Offer
The two-step tender offer involves two distinct phases:
1. Tender Offer: The acquirer makes a direct offer to public shareholders to acquire their shares, often conditioned on acquiring at least a majority of the target’s common stock upon the close of the tender offer [2][3].
2. Back-End Squeeze-Out Merger: If the acquirer holds sufficient shares (typically 90% or more), it can complete a back-end squeeze-out merger without needing a stockholder vote. This merger acquires all remaining shares, effectively delisting the company from public markets [2][3].
Key Considerations
1. Disclosure Obligations: Going private transactions are subject to extensive disclosure requirements under Rule 13e-3 of the Securities Exchange Act of 1934. This includes documentation of all stages of the transaction, which may eventually be publicly disclosed [2][3].
2. Fiduciary Duties: The company’s board of directors must navigate fiduciary duties carefully, often creating a special committee composed entirely of independent and disinterested directors to consider and negotiate the transaction with the acquirer [2][3].
3. Risk of Litigation: Going private transactions are commonly challenged by stockholder plaintiffs, particularly on claims of breach of fiduciary duties. The company must be prepared for potential litigation risks and ensure that the transaction is structured with appropriate safeguards [3].
4. Financial Considerations: Many going private transactions involve significant amounts of debt, with the assets and cash flows of the acquired company used to pay for these debts [4].
Importance in Mergers and Acquisitions
Understanding the go-private merger is crucial in M&A for several reasons:
– Avoidance of Public Disclosure Obligations: Companies may choose to go private to avoid rigorous public company disclosure obligations and onerous compliance requirements [2].
– Control and Flexibility: Going private allows the control group to regain control over the company, eliminating risks associated with public company operations such as hostile takeover threats and shareholder lawsuits [1].
– Restructuring Opportunities: The control group can capitalize on restructuring opportunities when market prices are depressed compared to asset values, providing flexibility in managing the company’s operations and finances [1].
In summary, a go-private merger is a strategic transaction that transforms a public company into a private entity, offering control and flexibility to the acquirer while navigating complex legal and financial considerations.
References
[1] Vedder Price. (2000). The Going Private Solution.
[2] Winston & Strawn. (2024). Going Private Post-DeSPAC—Strategies and Considerations.
[3] Wachtell, Lipton, Rosen & Katz. (2019). Going Private Guide 2019.
[4] Investopedia. (n.d.). Going Private: Definition, How It Works, Types and Example.
1. Disclosure Obligations: Going private transactions are subject to extensive disclosure requirements under Rule 13e-3 of the Securities Exchange Act of 1934. This includes documentation of all stages of the transaction, which may eventually be publicly disclosed [2][3].
2. Fiduciary Duties: The company’s board of directors must navigate fiduciary duties carefully, often creating a special committee composed entirely of independent and disinterested directors to consider and negotiate the transaction with the acquirer [2][3].
3. Risk of Litigation: Going private transactions are commonly challenged by stockholder plaintiffs, particularly on claims of breach of fiduciary duties. The company must be prepared for potential litigation risks and ensure that the transaction is structured with appropriate safeguards [3].
4. Financial Considerations: Many going private transactions involve significant amounts of debt, with the assets and cash flows of the acquired company used to pay for these debts [4].
Importance in Mergers and Acquisitions
Understanding the go-private merger is crucial in M&A for several reasons:
– Avoidance of Public Disclosure Obligations: Companies may choose to go private to avoid rigorous public company disclosure obligations and onerous compliance requirements [2].
– Control and Flexibility: Going private allows the control group to regain control over the company, eliminating risks associated with public company operations such as hostile takeover threats and shareholder lawsuits [1].
– Restructuring Opportunities: The control group can capitalize on restructuring opportunities when market prices are depressed compared to asset values, providing flexibility in managing the company’s operations and finances [1].
In summary, a go-private merger is a strategic transaction that transforms a public company into a private entity, offering control and flexibility to the acquirer while navigating complex legal and financial considerations.
References
[1] Vedder Price. (2000). The Going Private Solution.
[2] Winston & Strawn. (2024). Going Private Post-DeSPAC—Strategies and Considerations.
[3] Wachtell, Lipton, Rosen & Katz. (2019). Going Private Guide 2019.
[4] Investopedia. (n.d.). Going Private: Definition, How It Works, Types and Example.
Case study about Go-private merger in Dell Technologies
In 2013, the landscape of the technology industry underwent a significant transformation when Dell Inc., a leading player in the computer sector, made the monumental decision to transition from a public company to a privately-held entity. This pivotal move was driven by Michael Dell, the company’s founder, in collaboration with Silver Lake Partners, a technology-focused private equity firm.
On February 5, 2013, Dell Inc. formally announced its intention to undertake a go-private merger, a decision that would reshape its future. The total transaction value was approximately $24.4 billion, with the acquisition structured as a buyout of outstanding shares at a price of $13.65 each. This merger was not merely a financial maneuver but a strategic shift aimed at freeing the company from the relentless pressures of quarterly earnings reports that often hinder long-term growth perspectives.
As part of its rationale, Dell aimed to pivot its focus away from the traditional personal computer market, which had become increasingly competitive, and reimage itself as an enterprise solutions provider. The merger was designed to facilitate a transformation within Dell, allowing it to invest more aggressively in research and development without the scrutiny of public investors. This newfound freedom was seen as critical to the company’s ability to innovate and adapt to rapidly evolving technology trends.
To finance this ambitious deal, Dell utilized a combination of debt and equity, sourcing around $2 billion from Silver Lake while arranging for approximately $15 billion in debt financing, with pivotal advisory support from Goldman Sachs and Bank of America. This complex financial structure was necessary to support the massive buyout but also indicative of the high stakes involved in the transaction.
The merging process involved meticulous regulatory scrutiny, including a review by the Securities and Exchange Commission (SEC). Moreover, shareholder approval was crucial, and negotiations over the buyout terms ensured that the deal secured the necessary support from investors.
Ultimately, the merger was completed on October 29, 2013, marking the birth of Dell Technologies. This new entity emerged with a revitalized focus on enterprise solutions and services, effectively redefining Dell’s market positioning. The impact of the merger was felt almost immediately; Dell Technologies began to see a resurgence in financial performance, reporting revenues of $74 billion by fiscal 2017. This success was underscored by significant advancements in cloud and storage solutions, alongside investments aimed at improving cybersecurity.
Interestingly, the journey did not end with privatization. In 2018, Dell Technologies announced plans to return to public markets, setting the stage for a complex share conversion process that took place later that year. This move not only provided returns for the original private investors but also allowed Michael Dell to maintain substantial control over the company post-IPO.
The Dell Technologies go-private merger serves as a compelling case study of how a public company can strategically leverage the advantages of privatization to pursue aggressive growth strategies while alleviating the short-term pressures posed by public shareholders. Through careful planning and execution, this case exemplifies the strategic and financial complexities of a successful go-private merger and highlights the profound benefits that can arise from such a significant corporate decision.
Learn the term in other languages
| Language | Term |
|---|---|
| English | Go-private merger |
| French | Fusion d’entreprise privée |
| Spanish | Fusión para privatizar |
| German | Private-Equity-Übernahme |
| Italian | Fusione per privatizzazione |
