Andre Veloso shares his notes on going-private transactions, and how you can profit from them.
First of all, going-private transactions are filed with the SEC using SC-13E3 filings, there you can find the details of the transaction.
Second, by going-private transaction I mean reverse-splits or odd lot tender-offer that have the purpose of reducing the number of shareholders to below 300. Other going-private transactions (like a management buyout, in which some managers keep a stake in the company) are not included here, these work like a typical merger.
How do these reverse-split going-private works:
The company do a reverse-split on their shares in order to reduce the number of record shareholder to below 300. By doing that, they can deregister with the SEC and not need to file reports anymore.
Why “record shareholders”? a record shareholder is whatever shareholder that is in the books of the company’s tranfer agent. If you bought your shares using a broker, your broker is the record shareholder and you are the beneficial shareholder. How do I become a record shareholder? you need to ask your broker to issue a stock certificate, or register your shares using the DRS system (a new, certificate-less system for book-entry registration of your securities). See this link for more info.
So, if I have the shares in street-name, will I get cashed out? First, obviously need to hold less than the size of the lot of the reverse-split. After that, it depends on your broker and the company. If your broker has, in total, less than the lot size under the broker’s name, you’ll be cashed-out. If your broker has more, it will depend on the company. Some companies put in the filings a language saying something like “company intends to treat street shareholders the same manner as record holders”, but even that way you can never be sure what they’ll really do, because by law they are not required to do it.
That being said, to catch these reserve-split opportunities without running risk of being left holding a private security that is not SEC-registered anymore, I advise you to find a broker who can issue certificates or use the DRS system in a cheap way.
So far, I’ve found these brokers to offer good deals:
Scottrade (0 for DRS, 50$ per certificate)
Thinkorswim (15$ per certificate)
Schwab (25$ DRS, 75$ certificate, both waived if more than 36 trades/year)
Ameritrade (50$Ă‚ per certificate, waived if you are an Apex client)Ă‚
If any of you know more that are interesting, feel free to tell me.
Good luck!
First of all, going-private transactions are filed with the SEC using SC-13E3 filings, there you can find the details of the transaction.
Second, by going-private transaction I mean reverse-splits or odd lot tender-offer that have the purpose of reducing the number of shareholders to below 300. Other going-private transactions (like a management buyout, in which some managers keep a stake in the company) are not included here, these work like a typical merger.
How do these reverse-split going-private works:
The company do a reverse-split on their shares in order to reduce the number of record shareholder to below 300. By doing that, they can deregister with the SEC and not need to file reports anymore.
Why “record shareholders”? a record shareholder is whatever shareholder that is in the books of the company’s tranfer agent. If you bought your shares using a broker, your broker is the record shareholder and you are the beneficial shareholder. How do I become a record shareholder? you need to ask your broker to issue a stock certificate, or register your shares using the DRS system (a new, certificate-less system for book-entry registration of your securities). See this link for more info.
So, if I have the shares in street-name, will I get cashed out? First, obviously need to hold less than the size of the lot of the reverse-split. After that, it depends on your broker and the company. If your broker has, in total, less than the lot size under the broker’s name, you’ll be cashed-out. If your broker has more, it will depend on the company. Some companies put in the filings a language saying something like “company intends to treat street shareholders the same manner as record holders”, but even that way you can never be sure what they’ll really do, because by law they are not required to do it.
That being said, to catch these reserve-split opportunities without running risk of being left holding a private security that is not SEC-registered anymore, I advise you to find a broker who can issue certificates or use the DRS system in a cheap way.
So far, I’ve found these brokers to offer good deals:
Scottrade (0 for DRS, 50$ per certificate)
Thinkorswim (15$ per certificate)
Schwab (25$ DRS, 75$ certificate, both waived if more than 36 trades/year)
Ameritrade (50$Ă‚ per certificate, waived if you are an Apex client)Ă‚
If any of you know more that are interesting, feel free to tell me.
Good luck!
