When you lose more than $70 billion in stock market value in the space of roughly five years, it might just be time to put the investing public out of its misery and come off the stock market.
In the last few days BlackBerry, formerly known as Research In Motion , watched its stock market value fall to roughly $6 billion — down from more than $80 billion roughly five years ago, according to Reuters.
No wonder BlackBerry is said to be currently considering going private as one of its strategic alternatives.That takes some beating.
To be fair, Blackberry is just one of the many companies that discover that being publicly owned comes with great benefits but also great responsibilities to regulators and shareholders. Transparency is hard work. A pain in the you know what.
But if the public makes you rich beyond your wildest dreams when it buys your stock in an IPO, you then have to make sure the public gets a good return for gambling its retirement money on the fortunes of your shares.
Facebook FB +1.44% stock took about 14 months to make one cent for the brave souls who bought the shares in the low-float IPO last year — and this week the stock once again fell below the $38 IPO price after a few weeks with its head barely above the IPO water. Not good.
Just think what Facebook shareholders could have done in those 14 months with the money they punted on the IPO stock – the “opportunity cost” has been huge.
Welcome to the public markets.
Computer maker Dell Inc – which has lost roughly half its stock value in recent years — is another famous company that may also soon go private as founder Michael Dell seeks to buy it back with private equity help and take it off the public markets. You can understand the logic.
Reasons to be fearful: as a public company, time is not always on your side
Dell, BlackBerry and any other company in a similar position will see private ownership as a safe harbor from where a company can have the time required to make long-term strategic plans, free from the storms and many short-term considerations of being public.
Public companies, especially those with falling share prices, have to spend large amounts of time and energy focusing on the needs of long-term shareholders and the whims of fast-money traders, activist investors and opportunists looking for a quick buck – not to mention the squeeze from short sellers on the other side of the bet hoping the stock will fall further.
That’s a lot of time, energy and money spent on public investors with very different needs.
Private ownership, with or without private equity partners, can allow management and boards to focus like a laser beam on a company’s longer-term strategy and on implementing those plans.
rivate equity investors often have the same objectives and are therefore more uniform in their demands.
But this is not just a private equity bet. Let’s not forget that some of the world’s most iconic companies are in private hands, with or without private equity help. The list of privately-held giants includes H.J. Heinz Co, Mars Inc, Toys ‘R’ Us and Fidelity Investments.
In the United States, the value of “take private” deals jumped from $14 billion for the whole of 2012 to roughly $80 billion by early August this year, according to data provider Dealogic.
A survey by consultants McKinsey on the difference between public boards and private equity-led boards concluded that public company boards “… focused more on budgetary control, the delivery of short-term accounting profits, and avoiding surprises for investors.”
McKinsey added: “Public boards can be slower to react when change is needed, and their voice on everything but the CEO succession tends to be more advisory than directive.”
Reasons to be fearful: wise men bearing gifts?
Further, the McKinsey report argued: “Our respondents felt that private equity boards were much more effective at managing stakeholders, largely as a result of structural differences between the two models.
“Public boards operate in a more complex environment, managing a broader range of stakeholders and dealing with a disparate group of investors, including large institutions and small shareholders, value and growth investors, and long-term stockholders and short-term hedge funds.
“These groups have different priorities and demands (and, in the case of short-selling hedge funds, fundamentally misaligned interests). The chairmen and CEOs of public companies therefore have to put a lot of effort into communicating with diverse groups …
“The burden of investor management is much less onerous for private equity boards and the quality of the dialogue much better.”
Nonetheless, many stakeholders and commentators remain suspicious of private equity and its need of a lucrative exit.
Others, though, will argue that if debt is kept at sensible levels, going private frees up management’s time and energy from short-term earnings and share price obsession and regulatory compliance to focus 100 percent on trying to create a long-term future for a company and its future stakeholders.
For some struggling public companies, then, the script may be clear.
Go private, kick the firm into shape, get the strategy in place – and, for some at least … go public again.
Source: Forbes.com
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