Going private in the US

After a few golden years when it was popular for Chinese companies to list their stocks in the US, often via reverse mergers, there is a recent trend for Chinese companies to exit the US capital markets and consider relisting in other jurisdictions. Undervaluation of stock prices and attacks by short-sellers, well founded or not, are major catalysts for the current privatisation wave. Examples include Tongjitang Chinese Medicines Company, the first US-listed Chinese stock to go private from the US market in mid-2011, Harbin Electric, which completed its privatisation in November 2011, and Fushi Copperweld and China TransInfo Technology, which both recently announced their privatisation plans.

‘Going private’ means all or most of the stock of a publicly listed company is bought out and will end up in private hands. The stock may be bought out by private equity firms, or internally by the major shareholders or management of the company, or by affiliates of the company. Such a company, when held by less than 300 shareholders of record (or 500 shareholders of record if the company does not have significant assets), can then deregister the equity securities it registered with the US Securities and Exchange Commission (SEC) and will not be subject to the periodic reporting requirements of US securities laws thereafter.

There are different ways for a US public company to go private, including:

Mergers – where a US public company merges with, or sells all or substantially all of its assets to, a newly formed private company owned by the buyout group;

Simon Luk is a partner and chairman of Asia practice at Winston & Strawn in Hong Kong. He can be contacted at +852 2292 2222 or by email at sluk@winston.com. Fiona Tang is an associate at Winston & Strawn in Hong Kong. She can be contacted at +852 2292 2218 or by email at ftang@winston.com