January 24, 2005
The Mystery of Delisting
Posted by Christine Hurt

The Mystery of Delisting

Much has been written about the costs and burdens of Sarbanes-Oxley and the pressure on smaller firms to delist rather than pay incur those costs. An article in the NYT yesterday cited the fact that only 67 companies delisted in 2002, compared to 200 in 2003. I don't know if anyone can debate that the costs of Sarbox do not outweigh the benefits in many instances and that some smaller companies find that being publicly-traded is not worth it. However, I would like to know some more facts about the companies that are delisting. If the benefits to these smaller companies of being listed were only marginal, then I'm not too worried about Sarbox being the last financial straw. (One company mentioned was emerging from bankruptcy with fewer than a dozen shareholders. Would this company have chosen to go public if the question had arisen at this point?) In addition, how many companies delisting in 2003 and 2004 were companies that went public in the technology bubble that should not have gone public in the first place?

Also, to what extent are companies that merely wish to go private using Sarbox as a litigation-friendly excuse? Going private can generate shareholder lawsuits, but surely a court would find it reasonable within the company's business judgment to delist to avoid unnecessary administrative costs. One large company that recently cited Sarbox as the reason for delisting a stock was Cox Enterprises, which took its subsidiary Cox Communications private last year. This tender offer spawned some litigation, and I just wonder if maybe Cox Enterprises had various reasons to want Cox Communications to be a wholly-owned subsidiary and Sarbox was either a minor reason or an easy one to sell to selling shareholders.

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