I’ve been listening to The Indicator podcast by NPR since it started last year. I highly recommend it. As luck would have it, they covered two of my favorite financial topics recently, going private transactions and reverse splits. While they didn’t really connect the two topics, they did do a good job introducing these two concepts. I now point my family members to these podcast episodes when I talk to them about my unusual stock investments.
Privacy Please: Why Public Companies Go Private (Or Vice Versa) by Cardiff Garcia and Stacey Vanek Smith came out shortly after Elon Musk threatened to take Tesla (TSLA) private. That bluff was soon called and the SEC started and investigation shortly after. Regardless, this put the process of companies going private into the mainstream press. The podcast lists a few reasons why a company might want to go private. These include:
- Avoiding quarterly earnings reports
- Moving away from short term planning and instead lower short term earning for long term projects
- Taking control. Gain the ability to make decisions without having to get the by in of all the masses of shareholders
One other import item Cardiff and Stacy failed to cover involves the regulatory costs associated with being a public company. This was the motivation of many of the companies that went private after the Sarbanes–Oxley Act went into effect. I do like that they mentioned the risks of taking on lots of debt to take the company private. This is an issue I look for before investing in going private transactions.
In the episode called The Iron Lotus, The Indicator talks about the reverse split that Helios and Matheson Analytics (HMNY) recently conducted. Helios and Matheson Analytics is the parent company of MoviePass. MoviePass was a great deal for consumers, but it ended up being a terrible business. The company ran into problems and its stock price declined. To address the company’s need for more capital and its very low stock price, it decided to do a reverse split and issue a huge number of new shares. This crushed the stock price. Usually, a reverse split results in at least a temporary increase in the price of individual stock shares, but that didn’t really happen in this case. I really wished they covered a more typical reverse stock split example to compare it with this whole MoviePass debacle, but alas they didn’t.
I hope you enjoy these two podcasts. I found them to be a bit too basic, but they were still rather entertaining. I’m guessing newer investors will appreciate them.