Why Do Public Firms Go Private in the UK?

44 Pages Posted: 16 Jan 2006

See all articles by Mike Wright

Mike Wright

Nottingham University Business School

Tomas Simons

McKinsey & Co. Inc. - Amsterdam Office

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: January 6, 2006

Abstract

This paper examines the magnitude and the sources of the expected shareholder gains in UK public to private transactions (PTPs) in the second wave from 1997-2003. Pre-transaction shareholders on average receive a premium of 40% and the share price reaction to the PTP announcement is about 30%. We test the sources of the anticipated value creation of the delisting and distinguish between: tax benefits, incentive realignment, control reasons, free cash flow reduction, transactions cost reduction, takeover defences, undervaluation and wealth transfers, The main sources of the shareholder wealth gains are undervaluation of the pre-transaction target firm, increased interest tax shields and incentive realignment. An expected reduction of free cash flows does not determine the premiums nor are PTPs a defensive reaction against a takeover.

Keywords: Public to private, going-private, LBO, MBO, IBO, Management buyins, Management buyouts, Leveraged buyouts

JEL Classification: G34, G32

Suggested Citation

Wright, Mike and Simons, Tomas and Renneboog, Luc, Why Do Public Firms Go Private in the UK? (January 6, 2006). Available at SSRN: https://ssrn.com/abstract=873673 or http://dx.doi.org/10.2139/ssrn.873673

Mike Wright

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom
+44 115 951 5257 (Phone)
+44 115 951 5204 (Fax)

Tomas Simons

McKinsey & Co. Inc. - Amsterdam Office ( email )

Amstel 344
Amsterdam, 1017 AS
Netherlands
0031 205513009 (Phone)
0031 205515009 (Fax)

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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