Bill Mann Discusses Going Private Transactions

Bill Mann of The Motley Fool just wrote an article titled, “Free Money for the Taking?“. This article caught my attention for several reasons. First, I first discovered going private transactions as a result of Bill Mann’s experience last year with ASA International going private. Second, I think Bill Mann’s current article might be the first mainstream article discussing how to make money off of going private transactions. I have a funny feeling my list of current going private transactions might get a lot more popular over the next couple of weeks. Hopefully, the profit in these deals won’t disappear as a result of the masses flocking to them.

Bill Mann points out reasons why these going private transactions work:

These are tiny companies, and they don’t get much attention, even as they make their denouement from the ranks of public companies. Big funds are not going to bother, nor are institutions, for a few hundred bucks. And when the going private transaction is announced, it creates its own selling pressure.

He also points out several shortcomings associated with these deals:

  • These are tiny deals.
  • You can’t count on always having these opportunities.
  • Some of these transactions require you to hold shares in your name. They occur at the Record Holder level. If you instead own these shares in your brokerage account you won’t get cashed out.
  • Some companies reserve the right to cancel the going private transaction if it costs them too much money.
  • Some of these transactions might not be completed.
  • In other cases, it might so long for you to receive your cash that it might not be profitable.
  • Finally, it can take lot’s of patience to buy into these stocks since they are often illiquid. Limit orders are critical.

It will be interesting to see what kind of impact Bill Mann’s article has. Maybe it’s time I start researching tender offers, like the one pointed out by one of my readers, Chuck.

Have a great 4th of July weekend!

3 thoughts on “Bill Mann Discusses Going Private Transactions

  • July 5, 2005 at 12:28 pm
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    George-

    Glad you liked the article. Or maybe you didn’t, given the potential impact to the strategy. It is the old Richard Feynman principle: it is impossible to observe something without fundamentally changing it.

    I thought back and forth about publishing it, and ultimately elected to do so, for the very reason that my role is one of informing and teaching people about the stock market and its various permutations. It’s not in my nature, then, to hold back.

    I’ll tell you this much: in almost every time when I thought that publishing something would fundamentally destroy any trading advantage, I have noticed that my own fear over my power of influence in the market was dramatically overstated. People have their strategies, they see something new, then they go back to what they were doing before.

    Anyway, I’ve just bookmarked your site. Congratulations on your endeavor.

    Best regards-
    Bill Mann

  • July 5, 2005 at 10:52 pm
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    Bill,

    Welcome to Fat Pitch Financials. I am glad you found my site worth bookmarking. I am honored that you took the time to comment here.

    I have been reading your articles for several years. I have learned a lot from you and the rest of the Motley Fool. Now I’m trying to give back a little of what I have learned.

    I did enjoy your article on going private transactions. Heck, I think it might even draw some interest to my little corner of the Internet.

    Quite a few people have questioned the legitimacy of these “free money” deals, including my friends. :-) Maybe now that I can point to your published article on a mainstream website they won’t think that I’m trying to sell them a scam.

    I’m glad you did decide to publish the article in order to share your findings with small investors like myself. I share your desire to teach people about investing, though I sometime also hesitate to share some of my findings.

    So far it doesn’t look like your article has had too much impact on the price of some of the current going private transactions. Have you noticed any impacts?

    Feel free visit us often here, and we more than welcome your comments. I look forward to sharing investment ideas with you in the future.

    Sincerely,
    George

  • November 25, 2005 at 4:17 am
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    I recently discovered independently the same strategy on my own as I bought 99 shares of LIC at 25.50. Now I can’t flatter my ego and thinking I’m the only cunning fiend out there :).

    Unfortunately, I wasn’t smart enough to register myself as a record shareholder. Oops. Being a shareholder on record is not required, however the broker would than have discretion on whether or not to cash the shares out. I read on your website that cashing out can take as much as two months….now I am a small cap investor(and yet unexperienced) and I would need that money….

    What I don’t quite understand are the consequences. First, WHEN is the broker required to make up his mind on whether or not to cash out the shares? Is the broker subject to a general duty to act within a reasonable amount of time? Second, should the broker elect not to cash the shares out, will I receive fractional shares?

    Bottomline is that next time, I will instruct the broker to register my shares, even though this will mean additional brokerage costs.

    Also, George, when you say that ” So far it doesn’t look like your article has had too much impact on the price of some of the current going private transactions. Have you noticed any impacts?”, I think that Bill made a point (with which I concur) that people who will not be cashed out will tend to sell their shares, as a going private or going to pink sheets transactions would likely lower the price of those shares. This will create a significant selling pressure as those who hold (in Lic’s case) 1000 shares would try to sell them since they’re not getting cashed out.

    The corrollary is that this strategy is only suitable for small cap investors.

    On a side note, LIC’s financial statements seem quite good to me, on a first glance.

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