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Sledgehead

Buying into a De-Listing / Privatisation

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I'm sure we've all noticed the rise in buy-backs of late. Companies of all sizes seem very keen to get out of cash and into stock. Some blue chips are even taking on extra debt to buy back thei own stock.

 

Taken to the logical limit, companies will make tender offers to buy out shareholders before delisting. And it's happening to a sharehlding I have.

 

The first thing that occurs is the tender offer premium. The next thing is the realisation that you will soon have all control taken from you should you opt to retain your shares. But after a few days of chewing it over, you start thinking more deeply and realise that the bigger money taking the company private aren't doing it for the benefit of the shareholders that choose to leave the share register.

 

I note this week that counter to the shares leaving ordinary investors pockets via buy-backs, is the possibility of stock moving in the opposite direction from a company that did its own buying back 5 years ago : Toys 'R' Us. At the time the ~$6bn paid by private equity to mop up the ordinary shares seemed fairly generous, tho nowhere near the highs of its glory days. I wonder what KKR will want per share now the company is turning over $13bn. Walmart trades at less than half its sales (http://ycharts.com/companies/WMT/ps_ratio), tho doubtless the private equity consortium will be looking for a premium. My guess is they will be hoping to make a fat wad.

 

Either way, one has to imagine they have bust a gut to make the investment work: not something which can be said of a good deal of management nowadays, who seem more than happy to cream off bonuses (another aspect of the buy-back culture - see Terry Smith's views). If we are to make "investments", rather than just look for trading opportunities, perhaps these privatising companies should not be dismissed. And maybe we might even think, subject to protection by City Code etc), of running the other way, into the arms of a de-listing? Any experience of such endeavours would be greatly appreciated.

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Either way, one has to imagine they have bust a gut to make the investment work: not something which can be said of a good deal of management nowadays, who seem more than happy to cream off bonuses (another aspect of the buy-back culture - see Terry Smith's views). If we are to make "investments", rather than just look for trading opportunities, perhaps these privatising companies should not be dismissed. And maybe we might even think, subject to protection by City Code etc), of running the other way, into the arms of a de-listing? Any experience of such endeavours would be greatly appreciated.

Guy Thomas ("Charlie") may have a comment, if you can catch him.

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