5.9 Listing and the Information Management Regime 219US securities market laws – in particular the Sarbanes-Oxley Act – and the risk
of class actions have put off many foreign companies from listing in the US and
increased delistings.
Some firms are taken private following a takeover. For example, a controlling
shareholder will obtain legal benefits by taking take the firm private (Volume I),
and going private enables private-equity firms to refinance and/or restructure the
target without public scrutiny (section 10.5). The value of going private transac-
tions has grown in recent years.
It is also possible that either the firm or its shares issued have ceased to fulfil
the current requirements of a stock exchange listing.
Structure of going private transactions. A going private transaction typically
consists of the following steps. A public offer is made for securities issued by the
company. A voluntary offer can be followed by a mandatory bid under mandatory
provisions of law implementing the Directive on takeover bids,^420 other mandatory
provisions of law,^421 stock exchange rules, or the target company’s articles of as-
sociation. After the threshold of voting rights that gives the controlling share-
holder a squeeze-out right has been reached,^422 the controlling shareholder will en-
sure that the company will take internal action to decide on delisting and then
apply for delisting.^423 After delisting, the squeeze-out mechanism will be used to
acquire the outstanding securities.
Legal constraints on delisting. Delisting is constrained by legal rules necessary
for the protection of minority shareholders. A delisting always means that the li-
quidity of shares will suffer. This will have a negative effect on share price, as it
becomes more difficult for the remaining shareholders to sell their shares. The
terms of delisting depend on the governing law and the securities exchange. De-
listing rules have only partly been approximated by the provisions of EU securities
markets law.
In practice, the firm should take into account even other aspects before delisting
its securities. There may be contractual constraints. Although an issuer might be
eligible to delist its securities, it should review its various contractual obligations
to ensure that it is not otherwise obliged to remain listed (or, in the US, registered
with the SEC). In particular, an issuer considering delisting should verify that do-
ing so will not trigger any events of default or violate any covenants under its con-
tracts.
Three ways to delist securities. There are basically three ways to delist securi-
ties. First, the issuer can apply for a delisting (regular delisting). Second, the legal
entity that has issued the securities can cease to exist. Third, the securities can be
delisted either by the operator of the securities exchange or the competent author-
(^420) See nevertheless Article 5(2) of Directive 2004/25/EC (Directive on takeover bids).
(^421) Article 3(2) of Directive 2004/25/EC (Directive on takeover bids).
(^422) Article 15 of Directive 2004/25/EC (Directive on takeover bids). For German law, see §
327a AktG and § 39a WpÜG (Wertpapiererwerbs- und Übernahmegesetz, Securities
Acquisition and Takeover Act).
(^423) For Nordic law, see Kaspersen H, Om reguleringen af Going Private transaktioner, NTS
2003:3 pp 328–342; Kristiansson B, Avnotering efter ansökan av bolaget, NTS 2006:3
pp 32–44.