Ownership, Family Control, LBOs, and Country Effects: An Analysis of European Going-Private Transactions

We investigate how ownership structures affect going-private transactions in Europe. We examine both market reactions around the acquisition announcements and post-transaction performance, and we find that CARs around going-private announcements are negatively related to the stake held by its largest shareholder. The market reaction around the going-private announcement is also negatively related to the company’s stock price performance before the announcement, supporting the undervaluation hypothesis. The existence of large controlling shareholders allows us to investigate deals initiated by the company’s controlling shareholder. When the largest shareholder, particularly a family, takes a firm private, post-transaction operating performances are better than those of firms taken private by new owners, which experience significant worsening in profitability. We also compare the U.K. to non-U.K. going private: U.K. deals have higher returns for target shareholders, but worse post-transaction performance. We find that using an LBO to delist the company impacts neither abnormal returns nor operating performance. Finally, firms go private to restructure their workforce, in terms of both employee number and cost. This has a positive impact on the firm’s productivity and efficiency, increasing the profit for employees.