For companies tired of taking a beating in the market, deregistration may be a temporary shelter in the storm.
Webhire Inc.'s stock was trading at 50 cents on Nasdaq when the company's executives decided they'd had enough pummeling on the open market. The Lexington, Massachusetts, company wasn't the first to get fed up with the market's prolonged dry spell, but it wasn't just another late '90s flash-in-the-pan start-up, either. Webhire, which makes Web-based software for companies to manage their hiring processes, has been around since 1982. Its financials were fairly solid: multiple straight quarters of positive cash flow and sales in the $14 million range. But its pitiful stock price and deflated market cap were enough to scare away not just investors, but potential business partners and customers, too. At the same time, the company was spending roughly $400,000 per year on the document filing, legal work and audits required of public companies. New Sarbanes-Oxley regulations would only add to the bill.
Going totally private, though, would have cost a small fortune as well, as it would have required the company to do either a reverse split or a tender offer to buy back all outsider stock, notes Steve Allison, the company's CFO. "You need legal advice and a fairness opinion from an investment bank, and then there's the cost of the transaction," he says, adding that the company would have had to pay a premium over the share price to avoid raising shareholder ire. "In these litigious days, you have the danger of being sued."
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