acquisition, public-company, private-companyhttps://startups.stackexchange.com/questions/1619/public-company-taken-over-by-a-private-company-and-option-to-stay-on
This question made me wonder how would this process work? What happens to the public shareholders?
For a public company to go private some entity has to buy up almost all the stock. The specifications for US companies are on the SEC website here.
As for the shareholders who have less of the stock, they are basically bought out through a process called a "reverse stock split" that essentially consolidates the old shares into less, more valuable new shares.
For example, I own 200 shares of company X and they decide to reverse stock split at a ratio of 100:1. Now I can either choose to take two new shares in exchange for my 200 old ones or I can just sell out to someone else. If I only had 50 shares, the company would likely just pay me cash instead of issuing me new stock. This process consolidates the number of shareholders to a point where the company can 'go private'.
I've been wondering this recently too glad to have a reason to do the research!
I am less familiar with the technical process mentioned above but as far as I know from legal and business perspective, the private company that wants to acquire the public company can give an acquisition offer to the Board of Directors of the public company (The price will probably be higher than current market price); If the BOD approves the acquisition offer, then the deal will happen and the shareholders will receive the value of their shares in cash (or in other assets).
As the BOD represents all the shareholders, it has the authority to sell the company. (Needless to say, that they often exposed to personal legal procedures from angry shareholders…)
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