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Highlights
- With the US market becoming comparatively more attractive than the UK market, several UK-listed companies have been getting delisted of late.
- Delisting of stock basically means that it has been removed from the stock exchange, either voluntarily or involuntarily.
With the US market becoming comparatively more attractive than the UK market, several UK-listed companies have been getting delisted lately. Also, due to rising geopolitical tensions in the wake of the war, the London Stock Exchange (LSE) has been suspending the trading of many companies which have links with Russia.
But what is delisting and what happens when a stock gets delisted? Let’s find out.
Understanding delisting
Delisting of stock basically means that it has been removed from the stock exchange, either voluntarily or involuntarily. Companies take voluntary decisions to get delisted due to many reasons, which include cost reduction, short-term profits, reducing decision-making time, and in case of a buyout.
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Voluntary delisting may lead the investors into believing that the company is in some sort of financial trouble, thus losing their confidence. Also, it makes it difficult to raise funds from public markets.
On the other hand, if the regulatory requirements of the exchange, such as a minimum market cap, aren’t met by the companies, then they are forced to delist. All companies trading on the London Stock Exchange need to have a market cap of at least £700,000.
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What happens after delisting?
Even after a company gets delisted, the investors still own the shares of that company. Although the shares would not be sold on the exchange, they will be sold over the counter (OTC). When the shares get delisted, their value doesn’t automatically go up or down.
However, in case of an involuntary delisting, the shareholders may potentially lose their investment as forced delisting indicates that the company may be heading towards bankruptcy.
On the other hand, the share prices of companies may go up with voluntary delisting. Additionally, other benefits such as bonds and preferred shares are also offered to shareholders in case of voluntary delisting when the company opts to trade privately.
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After a private equity (PE) firm offers to take over a company, the shareholders of the company are offered a proposed price which is generally at the premium, as the companies getting taken over are usually trading at a discount or are undervalued. After delisting, it becomes easier for the companies to take decisions rapidly as the votes of shareholders and directors aren’t needed to implement a proposal.
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Merger and takeover
After a merger or takeover by another company, the holdings of the investors are exchanged for either cash or a new holding in the buyer. In case the company has a dual listing and is trading on another exchange after getting delisted from one, the investors would still be able to hold their shares, provided that the company treats all its shareholders equally with a cross-listing.
In case of a company gets delisted due to bankruptcy, the shareholders would generally lose their investments as the shares get cancelled.
Recently, the shares of many companies have also been suspended from trading on the LSE due to their ties with Russia. Suspension of shares typically takes place on the orders of the Financial Conduct Authority (FCA) if the companies aren’t meeting certain obligations. The rights of the shareholders remain intact, but trading isn’t allowed during the suspension phase.
