What Happens When A Company I Own Gets Bought?

Value Investing Journey is dedicated to developing the world’s best value investors. In that vein, I occasionally answer questions related to value investing, finance, learning, mental models, etc., on crowdsourcing site, Quora. I hope you enjoy the question above and answer below.

Below is an answer I wrote on Quora to the above question.  The question and answer are important to how we all learn our craft of value investing so I’ve decided to post it here as well.

If you’d like to follow my other value investing, finance, and other answers on Quora, you can do so here.

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This actually happened twice to one company I owned stock in. (MY UPDATED NOTE HERE – actually now a third and fourth time. I can’t detail the third company because it was one I recommended while working at the investment newsletter. But I can detail the fourth company as it’s one I recommended to subscribers of Press On Research three years ago.  This will come in future posts / videos on the blog.)

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 company’s 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 company’s 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.

Brazil Fast Food Company Insiders Ridiculous Offer To Take The Company Private

Quick Update About The Brazil Fast Food Going Private Offer

Brazil Fast Food Company, $BOBS, Taken Private Offer Voted Down By Shareholders

Sad To Be Losing Ownership of This Company That Gained 129%; Brazil Fast Food Buyout

The Potential New Brazil Fast Food Company Buyout

Hope this helped.

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To see how this process played out at another investment, read these posts I wrote about Dole and a similar situation a few years ago as well…

• In Part 1, I valued Dole and compared it to its competition
• In Part 2, I shared with you the results I had in only 104 days after my initial analysis of Dole led to great things
• In Part 3, you learned about some valuable hidden assets Dole owned including the value of its land and ships
• In Part 4, we talked about the rough part of this situation. Dole Chairman was working to manipulate Dole’s share price to bring the company private at a lower price
• In Part 5, we learned what the final ruling was against Dole Chairman and company insiders who were found guilty of manipulating Dole’s share price to take the company private at a lower price
• In Part 6, I recap everything we learned in this case study and show you how to find the hidden assets mentioned in Part 3  in a 27-minute video with step by step instructions on how you can do the same

Has this ever happened to you? If so how did it turn out? Bad like some of my examples? Or better?

Let me know in the comments below.

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