With final implementation of Sarbanes Oxley scheduled to occur this year, many small public companies should be thinking seriously about how to get private.
For some, simply "going dark" is the right strategy. For those with too many shareholders to go dark, a traditional going private transaction is required.
In virtually every transaction to go private, there is a risk of a lawsuit from shareholders who don't like the outcome. There are several keys that management must apply when executing the strategy both to fundamentally assure that shareholders get treated fairly and to reduce the risk of a lawsuit.
By seeking third-party help from legal and financial advisors, a company can fairly determine and establish a fair price for a transaction. The process includes more hurdles than I can cover here, but includes a third party valuation and fairness opinion.
Most investment banks (like my firm, Thorpe Capital) can provide a company with a fairness opinion, setting out a fair price per share for a going private transaction. The Board, if it has conducted the process fairly and openly, can take some comfort in the fairness opinion. The Board has a specific legal requirement (which Board members should review with legal counsel) to treat shareholders fairly.
Ultimately, however, there are almost always shareholders who vote against such a transaction. Directors will want to be sure that every possible step has been taken and documented to evidence that they have sought fair treatment for shareholders. A fairness opinion is key.
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