The French investment bank Rothschild & Co–not to be confused with Edmond de Rothschild, a separate Swiss company–announced plans to exit the public markets. It’s a strategy that is becoming increasingly successful, particularly among family businesses that play the long game–a game that some shareholders do not like.
Although they share the Rothschild name, the financial institutions Edmond de Rothschild and Rothschild & Co should not be confused. But there are similarities. Just as the Edmond de Rothschild group left the stock market three years ago, Rothschild & Co has decided to do the same.
Rothschild & Co, the investment bank resurrected in 1982 from the rubble of Paris Orléans by Alexandre and David de Rothschild, has announced that it will no longer be listed on the stock exchange. The aim is to maintain the family character of the company and to protect itself from any attempt at a “hostile” takeover. To carry out the withdrawal, they have relied on other major families of European capitalism–the Dassaults, the Peugeots, the Wertheimers (owners of Chanel) and the Giulianis–as well as historical allies–the Maurel, Dassault and other branches of the Rothschilds–and more than one hundred partners. All these stakeholders are bound by an eight-year pact, “with no promise to buy or sell at the end.”
To convince the uninvited shareholders to sell their shares, they will offer them €48 per share, a 34% premium over the last 120 days of trading. €1.25bn will be financed by the Rothschilds from their own resources and the balance by debt. Concordia, the holding company of the French (95%) and English branches of the Rothschilds, which currently holds 38.9% of the bank’s capital, will have sole control of the bank following the takeover bid.
Rothschild & Co is counting on this private environment to accelerate its growth.
Firms going private
It is not the first company to leave the stock market in order to grow. In the early 2000s, delisting was seen as a punishment by the financial markets or a sign of poor corporate health. Since then, with the succession of financial crises, it has become a real strategy.
For the proponents of such a strategy, the main interest is to regain control of operations and escape the pressure of shareholders who are generally more interested in short-term results, synonymous with dividends, than in the long-term development of a company. Many believe that market pressure undervalues companies and prevents long-term investments, which means lower profits and therefore lower dividends today. This is a “bad signal” for shareholders and may lead to a fall in share prices.
Delisting also allows companies to free themselves from the administrative constraints associated with being listed on the markets: publication of accounts, compliance with the rules of the trading platform, vulnerability to market jolts, impact of the reputation on the share price, pressure from shareholders on the company’s strategy, to name the main ones.
Not all companies can exit. Only those with sufficient capitalisation and reputation can take this step.
The other side of the coin is that withdrawal is expensive–as seen with the 34% premium offered to shareholders. This cost is financed by debt, which weighs on the accounts. At the end of October 2022, the average premiums since the beginning of the year were 45% for European companies and 42% for American companies.
Secondly, raising funds to finance growth can theoretically become more complicated. But this difficulty is becoming theoretical at a time when private equity is developing strongly and has significant capital to invest. However, finding private investors remains more complicated than finding shareholders via a capital increase.
This story was first published in French on Paperjam. It has been translated and edited for Delano.