Every now and then there are companies that decide to turn their back on the trading floor. But what exactly happens during a delisting?
• Delisting corresponds to the revocation of the admission to trading of shares
• Stock market regulators and supervisory boards must approve the delisting
• Shareholders are not asked, but must receive a compensation offer
A delisting is the withdrawal of a listed company from the trading floor. Legally speaking, when delisting, companies request “the revocation of the admission of their shares to trading on a regulated market,” as it says on the BaFin stock exchange regulator’s website.
Approval from the stock exchange supervisory authority and supervisory board is required
In order for a company to be able to say goodbye to the stock exchange, it requires the consent of BaFin on the one hand and, on the other hand, the company’s supervisory board must also give its consent. In 2015, the reform of the Stock Exchange Act resulted in shareholders being better protected in the event of a stock market withdrawal. Since then, investors have to be offered a compensation offer when a planned delisting is announced. And that even before the actual application to revoke the listing is submitted.
Compensation offer necessary
There is a guideline for calculating this severance payment. It should correspond to the average price of the stock over the last six months. Only in some exceptional cases is the severance payment determined using the company valuation. Such exceptions include, for example, if the company was guilty of something up to six months before the severance offer was made that significantly depressed the share price, for example spreading false information or failing to make ad hoc reports.
In addition, the Stock Exchange Act also stipulates that the compensation must always correspond to an amount of money in euros; other currencies or other shares may not be offered in the event of a delisting.
Same rules for downlisting
Incidentally, all of these provisions also apply if a company decides not to disappear from the stock exchange completely, but rather to simply switch to over-the-counter trading on a much smaller regional stock exchange. In this case it is referred to as downlisting. Even if it is theoretically still possible for investors to trade the shares, the trading turnover is often significantly lower, and in some cases there is no turnover at all, which makes it very difficult for the shareholder to turn his shares into money.
That’s why companies are withdrawing from the stock market
The reasons for delisting can be very different. Stock market withdrawals often occur when one company is taken over by another. The stock market listing comes with many obligations to ensure that there is as much transparency as possible for shareholders. For example, quarterly reports must be published and an annual general meeting must be held. However, it may be that the new major shareholder would prefer to restructure and rebuild the company away from the public and the delisting therefore appears to be favorable.
In addition, a return from the stock exchange can also be associated with cost savings, as, for example, mandatory events for shareholders are no longer necessary. A company may also decide to withdraw from the stock exchange because it is no longer dependent on financing via the stock market and would like to save itself the effort that comes with a stock market listing.
The stock exchange supervisory authority or the responsible financial services authority can also initiate the delisting of a company. This could happen, for example, in the event of a squeeze-out, i.e. if there are so many shares in one hand that regular trading can no longer be guaranteed.
Downlisting, on the other hand, can be attractive for companies because the regulations on small regional stock exchanges are usually less strict than on the regulated market, meaning that the requirements for trading are less complex and cost-intensive.
Shareholders are not asked
Furthermore, the shareholder is not obliged to accept the severance payment offer. Of course, there is also the option of keeping the shares, although it may prove difficult to be able to sell the shares at a later date once there is no longer a trading platform for the shares. Of course, one can also speculate that the compensation offer will be increased if there are not enough investors who have returned their shares. However, shareholders should know that their consent is not required for a delisting, so there is no way to protect themselves from one.
Editorial team finanzen.net