The Role of Disclosure in Closing Going Private Deals.

Abstract

A perceived conflict of interest in going private transactions can occur when a company transfers ownership and control to affiliated parties and terminates its public status. For example, conflict can occur if acquiring owners and selling owners have dissimilar information and competing incentives. These deals are subject to mandatory disclosure requirements to inform shareholders before the transaction is put to a general vote. However, the expected incremental role of these disclosures is uncertain. We demonstrate that disclosure volume is positively associated with the likelihood of closing a deal. However, we also find that disclosure volume is positively associated with two proxies for the intensity of shareholders’ negotiations: upward price revisions and litigation. Our findings offer insights into the incremental benefits and costs of disclosure in this setting. Specifically, increased disclosure can facilitate the completion of going private deals and exiting shareholders can use it to negotiate better terms.

Keywords: disclosure; going private; acquisitions; litigation; SEC filings.

JEL Classification: M41, M48, G34