The stock market downturn in the midst of the Coronavirus pandemic has generated increased interest in taking public companies private. Many boards of directors may not be receptive to these transactions in the near term, anticipating that their companies should recover when the crisis passes, and recognizing that the financing market creates risk and uncertainty. But going private may be an attractive option for some, and companies can expect to receive overtures from major stockholders and financial sponsors, despite potential financing challenges. Hence, a reminder of the legal fundamentals of these transactions seems timely.
Overview
The terms “take private” and “going private” transaction (for convenience, in this memorandum , we use the term “going private”) are both used to describe an acquisition of a public company by a controlling stockholder or other affiliate, or a transaction by a financial or other buyer that raises the specter of potential conflicts of interest on the part of members of senior management or the board of the target. The general framework under federal and state law that applies to any acquisition or sale of a public company applies to going private transactions. In addition, these transactions are subject to state law principles governing conflict of interest transactions, and may be subject to Rule 13e-3 under the Exchange Act.
