Benefits and risks of going public

 

For a company, going public has its benefits and potential risks. Ask Datuk Tengku Ibrahim Petra.

Until the wee hours of yesterday, Tengku Ibrahim was chairman and chief executive of marine services firm Petra Perdana Bhd.

But a group of shareholders in the company combined forces to remove him and three other directors in a marathon 13-hour extraordinary general meeting (EGM) starting on Thursday, despite him being the founder of the Petra group.

But that's life in the public-listed company domain, and as newsmen covering Thursday evening's EGM noted, the ousted Petra Perdana directors accepted the results of the vote as "fate".

There are as many reasons not to go public as there are incentives for doing it.

Going public and being listed on a stock exchange increases a company's profile and opens doors to more fund-raising channels.

It also gives easily determined value to a company's securities, which in turn can be used, among others, as collaterals to purchase considerations in mergers and acquisitions or to award valuable employees via stock options.

And for some founders of companies, going public is sought-after solely as an option to cash out of the business they have built.

But certain burden and risks are also attached to the move.

Going public, for one, means a private company would have to give up, well, its privacy. It has to adhere to a strict timetable for reporting and must be open to scrutiny from the public and the governing authorities.

No risk of going public is, however, greater than the risk of losing control of the company itself, as what has just happened to Tengku Ibrahim.

When the securities of a company are floated on the stock exchange, anybody with the right amount of money has access to them.

The simplest and most straightforward way of gaining control would be to accumulate enough portion of the company to match that held by the incumbent controlling shareholder.

Or the shareholder may combine with friendly parties to make the required portion and garner the support to call for an EGM and change the board composition.

The raider may also go a step further by accumulating more than one-third of the company's equity and then make a bid for whatever stake not already owned by them. Bids such as these are usually hostile in nature.

Or a party in control of a public company may lose control by being voted out of the management, which is more likely what happened to Tengku Ibrahim and the three directors voted out of the board on Thursday. They are now just shareholders in the company.

However, we probably have not yet seen the end of the story as far as Petra Perdana is concerned.

With both parties involved in the company's boardroom battle holding equal equity interests in Petra Perdana, one would surely want to strengthen its hold on the company. A complete takeover battle cannot be ruled out.

Which is another issue about going public, as some of these boardroom battles is long-drawn, energy-sapping and takes a company's focus away from what it should really be doing - improving earnings.