Conflict of Interest in Investment Banking
February 12, 2025
Free cash flow models can be further categorized into two types. There are certain kinds of models which pertain to free cash flow that the firm as a whole will generate whereas there are others that pertain solely to the perspective of equity shareholders. These models are quite different from each other. It is therefore […]
What is Capitalization Capitalization comprises of share capital, debentures, loans, free reserves,etc. Capitalization represents permanent investment in companies excluding long-term loans. Capitalization can be distinguished from capital structure. Capital structure is a broad term and it deals with qualitative aspect of finance. While capitalization is a narrow term and it deals with the quantitative aspect. […]
In the previous article, we have already studied what merchandising is. We now know why it is an important source of revenue for the sports team. We also know how the business of merchandising is conducted and what are the benefits of the same. However, it needs to be understood that there are a lot […]
We live in a capitalist world today. This is the era of multinational corporations. Today, there are many companies that are more powerful as compared to entire nations. This is the reason that they sometimes lobby hard to avoid taxes. Many times, when these companies are in a dominant position, they even threaten governments that […]
The inner workings of hedge funds are as elusive as their outward appearance. The general public usually does not know how hedge funds generate revenue and how they manage to pay their employees record salaries and pay rent for the prime properties where their offices are located. The general population is unaware of the various […]
It is common knowledge that investment bankers help a company when they want to list their shares on the stock exchange. This process is called listing, and there are hundreds of companies that undertake this process every year. However, the opposite of this process also happens. This means that companies that are already publicly listed also tend to go private. This process is called delisting and happens much less frequently. However, just like delisting, this process also requires the services of an investment banker.
In this article, we will have a closer look at what delisting is and how investment bankers help in the process.
Delisting means that the shares of the company will no longer be traded on the stock exchange. This could happen either voluntarily or involuntarily. Stock exchanges have certain criteria that need to be met in order for the companies to remain listed. For instance, they have to pay an annual listing fee, must maintain a certain amount of turnover, and must comply with the rules and regulations of the exchange. If they fail to do so, they can be delisted forcefully by the exchange. Such a delisting is called involuntary delisting.
Compared to this, many companies decide to get delisted by their own wish. This is because delisting allows them to keep their records private and provides some other benefits as well. This is called voluntary delisting. In the balance of this article, we will provide details about the voluntary delisting process as well as the role of investment bankers in the process.
Companies that want to delist their shares have to enlist the services of an investment bank. This is because, just like listing, delisting is a complicated legal procedure. There are many regulations that need to be complied with. As such, there is a need for the services of an investment banker who is well versed with the processes that have been put into place.
The delisting process happens via a procedure called reverse book building. In the previous article, we have already studied how investment bankers use the book-building process in order to list the shares. However, in this article, we will learn about how the process works in reverse.
During the reverse book-building process, the positions of buyer and seller are interchanged. This means that the company is the buyer for their own shares instead of being the seller. On the other hand, the investors who earlier bought the shares will now be the sellers. The reverse book building process is done to allow for efficient price discovery during the delisting process.
Example: If a company wants to buy 300 shares, it receives 4 bids of 100 shares each for $10, $12, $14, and $16. Here if the company pays $14, then they can purchase 300 shares. Hence, all shareholders who bid below $14 will have their shares acquired at $14 per share. Hence, $14 is the cut-off price. The process is exactly like book building, but it works in reverse.
The bottom line is that delisting is also an important opportunity for investment banks. This is because it is used by many companies to consolidate control back into the promoter’s hands.
Your email address will not be published. Required fields are marked *