Is this legal?
Hi WSO! Question about PE/VC. I am wondering of the legality of this scenario: a VC fund taking a stake in a legitimate startup that is truly a good investment in their opinion, then one of the GPs of the fund buys a stake in a public company with his own capital and gets management to acquire the company that the VC firm is an owner in for a higher price than the VC paid using cash off the company's balance sheet. Would this be legal? Thanks!
kinda confused by your question. But no. That would be illegal.
That is not illegal. Public companies buy private companies all the time.
Maybe I'm not understanding the question, but my 2 cents
No you are understanding. Thanks! It was really a hypothetical. My question is assuming that the company would approve it and that it fits into the acquiring company strategically. Would that still be a conflict or potentially illegal?
Elaborating a bit on this correct answer to the OP question.
When buys a significant share of a listed company, he is required to disclose it. The threshold and rules for the disclose vary by market but in any case to have any kind of influence on the company you need to have a rather large share (think double digit %). So the holding of the GP would be either be known by the market or not significant.
If the GP a happen to be not only shareholder but also a director of the listed business, given the conflict of interest he should not vote for the specific resolution.
The deal would however attract the interest of the regulators (e.g. stock market authority), so no GP would put himself into this willingly.
Last and even more important... It would be a lot more easy for the GP to get in touch discreetly with an executive of the listed company to pitch the idea of the takeover than buying a significant share of a listed business just to have a nice exit on an investment (also because if the market didn’t like the takeover, the drop in the price of the share might result in a significant reduction of the value of the GP’s holding).
^Great response, agree with all of it
Thanks a lot for this. Appreciate it. Sketchy things have happened in the grey area of takeovers so I am curious to see how something like this would play out. Thanks!
Pretty much.
Numquam sunt quod sit et et dicta. Et eaque rerum illum quibusdam aut culpa aut. Ut rerum laudantium odit ut at. Corrupti qui labore autem aut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...