What happens when a company delists?
Shares held on the EasyEquities platform are listed on a stock exchange and are held in a dematerialised format. This means we do not issue share certificates for listed shares, because the shares represented on the platform are part of an electronic share register linked to the stock exchange.
Investing in a listed company comes with risks - one ultimately being delisting. Keep in mind that a company can and may be listed for more than 100 years; this is all dependent on the performance and decisions of business majority shareholders. Delisted shares will no longer be available to trade through the EasyEquities platform. We have highlighted some important points regarding delistings to improve your understanding.
Suspension
In order for delisting to take place, shares are suspended for a certain period. Depending on the reason, suspension can take place either to protect investors or execute the final delisting process.
Delisting is categorised into two options: voluntary and mandatory
Voluntary
While delisting is associated with a stigma of a failing company, this is not always the case. On the positive side, when a company voluntarily delists, this may result in good results for investors. The company can choose to delist either because it's moving to a different stock market, cutting listing costs or simply wants to become a private company.
Mandatory
When a company is not performing well or failing to comply with listing requirements, including mismanagement, the stock exchange may be forced to delist the shares. And while this may sound concerning as to what happens with one's shares, it's not too bad.
Offers presented may differ depending on the reason for delisting. These include:
Cash offer
When a company is in the process of delisting, a cash offer is one of the most common and may at times be given as a choice along with other delisting offers.
Cash offers that come from a voluntary delisting will more than likely be profitable to existing shareholders, whereas cash offers from a mandatory delisting could result in losses.
Apart from cash, investors may be given other offers, such as a share offer. This offer is usually triggered when a company enables investors to remain shareholders, notably when the company is bought out. The offer is not limited to listed companies, but also includes unlisted shares.
Listed shares
In the case where a company is being bought out, this may result in an offer where investors are offered the option to take cash or exchange a specific amount of shares for new shares.
Unlisted shares
Where a company enables investors to remain shareholders even after delisting, investors are offered unlisted shares. Unlike listed shares, unlisted shares are not tradable on the stock market. However, investors who take up the offer remain shareholders within the company.