What Happens When A Company I Own Gets Bought?

What Happens When A Company I Own Get Bought?

What if my valuation is even higher?

The quoted area below is the answer I wrote the the above question asked on Quora.

This actually happened twice to one company I owned stock in.

The first time was a complete low ball offer by the management/insiders of the company to go private.

I was so appalled by the low ball offer that I wrote about it on my blog saying all shareholders of this company should fight.

After this I got contacted by many other investors in the company and we banded together and rounded up as much support as we could to fight.

We did and we won because between all of us we controlled somewhere between 10 and 20% of the companies shares.

The low ball buyout offer was defeated and we won… At least in the short term.

Fast forward one and a half years later and the company proposes another buyout offer.  This time instead of the company itself going private it was going to merge with another private company.

I was going to write about it on my blog again and contact everyone we got together before to fight again until I read the offer…  The company learned from its mistakes of the previous time and upped their offer by 16% or $3 a share.  This wasn’t the big kicker though…

While the offer was upped it was still 10 to 20% below my conservative estimate of value.  So we planned to fight… Until I read the updated offer.

The company learned their lesson from last time…

Instead of trying to force shareholders to accept their “generous” offer like the first time, now they already worked with a significant “outside” investor who controlled ~40% of the companies shares who already agreed to the new buyout.

While this investor was never revealed it made fighting the upped – still lowball – offer pointless since they already had so much support.

Since our group would have wasted our time fighting we chose to accept the inevitable low ball buyout.

We were losing ownership of a great profitable company that had minor competitive advantages that should have continued to compound our investment well over time.

A perfect Buffett type of company to own for the long-term.  And we were getting bought out at an offer that was well below our conservative estimates of the companies value.

No we weren’t happy about it but this time there was nothing we could do.

I was proud that we fought the first time and helped shareholders earn ~16% more than the original ridiculous offer.

Long story short is that unless you’re a majority owner of a company you can’t do anything to stop a merger/buyout at a low ball price if the company enlists enough support.

If this does happen to a company you own you can do one of two things.  Fight or accept the buyout price.

If you want details on more of the specifics from the above example go to the following links where I wrote about extensively on my blog.

Hope this helped

Have you ever been through a similar situation?  If so how did you handle it?  Let me know in the comments below.


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