Question

Damian's & Co was officially delisted from the ASX in mid-2017, after it was bought by an overseas private equity firm. What could be the possible reasons behind Damian’s decision to exit the stock market? Please provide at least TWO reasons and briefly explain.

Answer 1

Delisting from a Stock Exchange is a process in which a company voluntarily or involuntarily removes its shares from the Exchange and thus public will no longer be free to trade in those shares. It is a move towards making a publically listed company going private.

There could be many reasons to delist a company, some are as follows:

• To expand Business In order to do strategic restructuring, companies make changes in their management and operations, making them competitive in the market. They do so. to expand the business, for which they require funds.
  • Once a company not definite about the expansion results, sometimes do the expansion in private mode, so that any negative deviation from the expectation does not harm the goodwill of the company among the stakeholders.
  • And, once the restructuring is implemented as planned and starts giving results as desired, they can again list the company making the trust of the stakeholders intact.
• Lesser Regulatory Compliances Sometimes, the regulations are hard to follow in further expansion. Getting overseas funding makes the management of the company to start making efforts towards legal compliance, making the core things sidelined and ignored.
  • Also, if the company's total public shareholding goes below the minimum requirement, it also requires to delist from the exchanges.
  • So, to utilize the funding received from the overseas investor in a profound manner without much legal boundation to utilize such funds, it's better to delist and make the company going.