Why delist?
WHAT do the following Philippine corporations have in common: eagle Cement, Pepsi-cola Products Philippines, Splash Corp., San Miguel Brewery, Chemrez technologies, Alaska Milk, travellers international Hotel Group, and Cosmos Bottling?
All these companies voluntarily delisted from the Philippine Stock Exchange for a variety of reasons, including going out of business, being absorbed by a “parent company,” and simply not wanting to be a publicly owned corporation with traded shares.
Why does a company “go public” and become listed on a stock exchange in the first place?
Corporations “go public” for three fundamental reasons. Family-owned companies, particularly at the second and sometimes third ownership generation, sell shares to “take money off the table.” Ownership of private companies does not have liquidity and the stock market provides the most efficient way to convert the hard asset into cash.
An Initial Public Offering is the most efficient even if not the easiest way to raise capital and at a premium to actual asset value,
including intangibles like goodwill. Borrowing funds for expansion costs money and requires guaranteed payback.
Further, there is the valid concept that it is easier to raise one dollar each from a million people than to raise a million dollars from one person.
A public company also has an immediate boost in financial credibility as it is a “fact” that private companies keep two sets of books: one accurate and one for the tax authorities. Lenders, particularly from international sources, are much more inclined to look at loaning to listed companies rather than to unknown private firms.
The actual business interests of a public company increase in credibility too as clients and customers of a listed firm know that management has shareholders looking over executive shoulders for any shady
The actual business interests of a public company increase in credibility too as clients and customers of a listed firm know that management has shareholders looking over executive shoulders for any shady practices.
practices. Certainly, public companies—think Enron and Bre-x Minerals—can be crooked. But it is the private firms like Elizabeth Holmes’ Theranos Inc. and Lincoln Savings and Loan Association (at the heart of the five scandals during the 1980s savings and loan crisis) that take fraud to a higher level.
However, Metro Pacific Investments (MPI) plans to delist from the Philippine Stock Exchange. Businessmirror, April 28, 2023: “A consortium that includes Manuel V. Pangilinan and Japan’s Mitsui is taking conglomerate Metro Pacific Investments Corp. private.”
Why delist? Notice the terms of the offering. “The tender offer price represents a premium of 22 percent over the 12-months volume-weighted average trading price [P4.63 per share] of MPIC on the PSE.” The share price of a listed company is determined by the market. “The bidders feel that the intrinsic value of MPIC’S core investments has not been fully reflected in MPIC’S share price for some time.” The problem with being “public” is that retail investors are rude. In January the market price was P3.50, went to P4.50 in February, and the “little guys” (presumably) took profits and the price retreated back to P3.50.
Further, apparently all the public cares about is making money, not about the company itself. “Public companies are often under pressure to deliver short-term results to meet quarterly earnings expectations. By going private, MPIC could take a longer-term view and make strategic investments without worrying about how they might impact quarterly earnings.”
How dare an investor buy shares to make a profit when they can hold for the longer-term company profits? After all, if I bought at P3.29 last December 19—the 2022 daily closing low—and received a P0.076 cash dividend on March 27, 2023, that is a 2.17 percent return.
However, buying at P3.50 and selling at P4.50 yields a 28 percent profit.
But what about the advantage of being public for raising new cash? Chairman Manuel V. Pangilinan said there are a lot of ways of raising money even as a private entity. So why go public in the first place?
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