Question

Write 2 page paper in which you respond to the question below and provide true/ false replies for all questions (with supporting rationale) and additional requested information, with references.

1e. True/ False - An unusually low stock price in management's eyes encourages management to take the company private in a management buyout

Identify an instance where management took a company private based on a low stock price valuation? Did the company remain private, and if so, why did it remain in private hands?

Answer 1

True

An unusually low price for encourages the management to take the company private as they can take the company into private hands and streamline the process so that they can again go public with a higher valuation.

This provides opportunity to buy equity of the company at a lower valuation than what the management feels its correct valuation is and the company can utilize its cash on hand by rewarding its current investors.

An example for the same is Dell when in 2013 Michael paid $25 Bn for management buy out to go private.

This can be challenging some times as the management is becoming owner from an employee in this process.