Why Do Companies Voluntarily Delist From the Stock Market?

Cement company Holcim is proceeding with its previously announced plans to delist from the Philippine Stock Exchange. On Thursday (September 28), the company said it had commenced the delisting process through a voluntary tender offer for the remaining public shares following the sale of 9.22 percent of its issued and outstanding capital stock. That left the minimum public float of the company to 5.05 percent, which is way below the 10 percent public float required by the PSE of listed companies. 

Holcim said the 594,952,725 common shares (representing 9.22 percent of the outstanding capital stock) was purchased last June 29 by Netherlands-based Holderfin BV from Sumitomo Osaka Cement Co., Ltd. As of 06 September 2023, the total ownership of Holderfin along with two of its affiliates, Union Cement Holdings Corporation (“UCHC”) and Cemco Holdings, Inc. had reached 6,360,331,876 Common Shares, representing approximately 98.58 percent of the Company's issued and outstanding common shares.

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Rather than increase the minimum public float to acceptable levels to remain a public company, Holcim said it chose to conduct the tender offer for the remaining shares and voluntarily delist from the PSE.

Holcim’s delisting follows the announcement in April that Metro Pacific Investment Corp., the holding company of various businesses led by tycoon Manny Pangilinan, would also voluntarly delist from the PSE. MPIC’s delisting follows a tender offer notice from a consortium that includes Metro Pacific Holdings Inc., GT Capital Holdings Inc., Mit-Pacific Infrastructure Holdings Inc., and MIG Holdings Inc.

Why do companies voluntarily delist from the stock market?

Delisting essentially means the removal of securities from a stock exchange. Delisting can be done either voluntarily or involuntarily. According to Investopedia, companies that are involuntary delisted are usually those that close down or cease operations, declare bankruptcy, or do not meet listing requirements.

Those that voluntarily delist, meanwhile, are often companies who merge or are acquired by a bigger company and decided to become private.

There are many considerations why listed companies would choose to delist from the stock market. One reason is that the costs of being publicly traded are perceived to be too high.

“Some companies may feel the costs of being publicly listed (i.e. all the regulations you must comply with, the increased scrutiny from investors, the pressure to see your stock price above certain level) are not being properly compensated by easier access to funding,” according to Miranda Partners, a financial consultancy firm based in Mexico. “They might have private investors that are interested in becoming a part of the company on the side. They might even see easier access to private debt.”

Another reason is that the company may perceive that the market valuation for it is too low. “Some control groups may think the market is not fairly valuing its business and fail to see how this will change in the short term,” MP says. “These groups may see a good opportunity in buying back the free float, so if they have the money to do so, delisting may make financial sense in the short term.

Some companies go through a significant merger or is acquired by a much larger company (by purchasing all or a majority of the listed stocks), leading to a decision to take the company private.

Lastly, companies just want to simplify their corporate structure. “This is especially true for multinationals or conglomerates where you can consolidate into one single listed entity,” according to MP. 

In short, companies often choose to delist when they are not able to raise equity, their growth opportunities and profitability are low, and they generative negative returns, according to this paper from the Birmingham Business School.

There are dozens of local companies that have voluntarily delisted from the PSE over the years, including Eagle Cement Corp. (February 2023), Pepsi-Cola Products Philippines (December 2020), Travellers International Hotel Group Inc (which operates the former Resorts World Manila Inc, October 2019), Energy Development Corp (November 2018), Splash Corp. (October 2016), Republic Cement and Building Materials Inc. (April 2016), and SM Development Corp (November 2013).

Sometimes, there is a perceived notion within financial circles that a company delisting from the stock market is an indication of unfavorable market conditions and uncertainties, but this is often not the case. After MPIC announced its plan to delist back in April, BDO Securities Corp. first vice president and chief operating officer Bernhard Aloysius Tsai was quoted as saying that the company’s action does not reflect domestic market uncertainties.

“Any potential negative effects will likely be short term in nature,” he said.