What is corporate privatization?
Privatization of a publicly traded company refers to transferring ownership, operation, and control of the company to a private enterprise. A public company may choose to go private for several reasons, including：
- Public companies allow a company to manage its business or restructure its operations without the strict regulatory or shareholders' oversight imposed on publicly listed companies.
- Private companies also do not have to meet Wall Street's quarterly earnings expectations.
- Privatization can give executives more freedom to pursue riskier and longer-term projects without being concerned about public shareholders demanding quick results.
What does it mean to take a public company private?
The term going private refers to a transaction or series of transactions that convert a publicly traded company into a private entity. Once a company goes private, its shareholders are no longer able to trade their shares in the open market.
Companies often go private after being bought by private equity firms or other investment groups. There are several tender offer ways to take a public company private, as seen below:
- Private equity buyout. One way for this transition to occur is for the company to be acquired through a private equity buyout. In this transaction, a private equity firm will buy a controlling share in the company, often leveraging significant amounts of debt.
- Merge and acquisition. The company merges with another company or
the company declares a reverse stock split that reduces the number of shareholders of record.
- Management buyout. Another common method is the management buyout transaction, in which the company is taken private by its own management team. And it generally takes companies private in an effort to streamline operations and improve profitability.
- Tender offer. A tender offer is an example of going private. This occurs when a company or individual makes a public offer to buy most or all of a company’s shares.
A real-world example of a going private
In October 2022, as the CEO of Tesla, Elon Musk closed on his acquisition of the social media platform Twitter. The transaction to make Twitter a private company was completed, and Twitter's stock had already stopped trading on the New York Stock Exchange, where it had been listed since 2013.
Back in September 2022, Twitter’s shareholders approved the company’s sale to Elon Musk and agreed to sell their stock to him for $54.20 per share, so investors will be able to claim the cash value of their shares, and Twitter shareholders no longer retain any rights to the company.
As part of buying Twitter, Elon Musk is merging the social media company with X Holdings, a corporate entity that he established in Delaware to handle the deal. X Holding is buying out all of Twitter’s stock and will control the service, and Mr. Musk will control the holding company. By going private, Twitter will avoid some public scrutiny since it will no longer be required to make quarterly disclosures about the health of its business.