Abstract
In recent years, a large number of companies on the Italian stock market have been delisted. Several of these companies implemented a “Hit and Run” strategy, choosing to go private only a few years after their IPO. In this study, we focus specifically on all Italian companies listed for less than 10 years between 1998 and 2010 and we calculate the return a potential investor realized by buying stocks in the IPO and selling them during the tender offer. This return can assume either positive or negative values. The cases of negative return are an interesting object of analysis. In these cases, if the majority shareholder promoted both the IPO and the tender offer, this negative return implies a loss for minority shareholders and a specular gain for the majority shareholder, and this fact has clear ethical implications. The Italdesign-Giugiaro case study is a remarkable example of this specific situation, called “Revolving Doors” by practitioners. Using regression analyses, we try to understand which features of the company and the tender offer influence the calculated return—and consequently the likelihood of observing “Revolving Doors”. In our sample, we show that the return is lower, and, at times, even negative, when the majority shareholder launches the tender offer, the first shareholder owns a large stake in the company, and the company is venture-backed. Our results suggest the need to develop new laws and governance mechanisms oriented towards the protection of minority shareholders and provide an opportunity to discuss the ethical implications of “Revolving Doors” using a deontological and teleological mode of analysis.
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Notes
There are two major forms of delisting: mandatory and voluntary. Given that voluntary delisting represents an expression of the desire of the board of directors and thus a characteristic aligned to free markets, for purposes of this paper, we focus only on this type of delisting.
We thank an anonymous reviewer for this comment. In particular, let \( P_{IPO} \) and \( E\left[ {P_{TO} } \right] \) indicate the IPO price and the expected tender offer price. Then, if majority shareholders launch the IPO, there is a potential for “Revolving Doors” whenever they are willing to launch also the tender offer and \( P_{IPO} > E\left[ {P_{TO} } \right] \).
Using an efficiency-equality framework of analysis, it is worth noting that “Revolving Doors” do not generally involve any creation of real value for shareholders (and, thus, any improvement in efficiency), but only a transfer of wealth from minority shareholders to majority shareholders (and, thus, a loss of equality). Therefore, we believe that, if the level of efficiency is fixed, the end of market egalitarianism is appropriate to discriminate between ethical and unethical behaviors (in a teleological sense).
Leveraged Buy Out.
Management Buy Out.
In particular, the agency conflict arises between majority and minority shareholders. Agency conflicts between majority and minority shareholders are, indeed, widespread in Italy (see, for example, Bigelli and Mengoli 2004).
Since the offer was conditional on reaching 90% of the capital, the presence of the vehicle society would have allowed First Design to proceed to delist Italdesign through a merger of the latter company in Wide Design if the bid had not been successful.
The area bounded by Italdesign and the market index series represents the net gain achieved by the Giugiaro and Mantovani families and, consequently, the net loss suffered by shareholders who bought shares in the IPO and, eventually, sold them during the tender offer.
Source: Italian Stock Exchange.
If we exclude the tender offers motivated by financial crises, several of the Italian tender offers may be explained using the Cost Saving Hypothesis and the Undervaluation Hypothesis presented in the introduction (Geranio and Zanotti 2010).
As a robustness check, we reproduced our empirical analysis considering periods of less than 10 years (up to a limit of 5 years) and obtained similar results. We believe, however, that the term of 10 years represents a fair compromise between the desire of including only the companies that followed a “Hit and Run” strategy and that of enlarging the number of observations to enhance the reliability of the statistical analysis.
We gathered the IPO price and the tender offer price from the prospectuses that, for the most part, we collected from the website of the Italian financial regulator (CONSOB). To complete our dataset, we also benefited from the help of Mediobanca Ricerche e Studi and of Banca Dati Euripides - Universoft (Vismara et al. 2012).
We collected time series of stock prices from Datastream.
Considering the post-transaction history of all “Revolving Door” cases, we confirm that, analogously to the case of Italdesign, none of the companies experienced a failure in the years immediately following the delisting. Indeed, “Revolving Door” companies, generally, experience an improvement in their overall economic situation after the delisting. Consider, as an example, the case of Marazzi and Cremonini. After its delisting occurred in 2008, Marazzi recorded a significant increase in terms of both revenues and net-profits: revenues passed from 818 million euros in 2010 to 832 million euros in 2011; net-profits passed from 14 million euros in 2010 to 20 million euros in 2011. As for Cremonini, after its delisting in 2008, also this company recorded a significant increase in revenues and profits: the former passed from 3.039 million euros in 2010 to 3.298 million euros in 2011; the latter passed from 36.4 million euros in 2010 to 51.7 million euros in 2011.
In particular, we considered the Reset specification test, the Breush-Pagan heteroskedasticity test, the Shapiro-Wilk normality test and the Vif multicollinearity test.
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Acknowledgments
We wish to thank all members of the Finance Group at University of Bologna and Joseph Tanega for their valuable advice. We also wish to thank Marco Bravaccini for his contribution in the data collection process. We are indebted to two anonymous referees for their valuable comments. The usual disclaimer applies.
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Pattitoni, P., Petracci, B. & Spisni, M. “Hit and Run” and “Revolving Doors”: evidence from the Italian stock market. J Manag Gov 19, 285–301 (2015). https://doi.org/10.1007/s10997-013-9260-y
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DOI: https://doi.org/10.1007/s10997-013-9260-y