When a company goes private, it's always rife with conflicts. Management's entrusted to represent shareholders -- but if management is buying the company, isn't that an incentive to pay a low price?
The situation gets even more complicated when the company's founder is part of the management team. That's the case with Greg Daily, CEO and founder of iPayment
The drama started in May, when Daily initiated his plan to take iPayment private. As Fool contributor David Meier pointed out, the stock was selling at almost 40% below its 52-week high. Yet the company doubled its revenues in the first quarter, and earnings per share increased 37%. In addition, the company has strong cash flows, which makes it a good candidate for a leveraged transaction.
Who better than a CEO to know if his company is undervalued? Why not make more money by taking the company private? After all, it's difficult for relatively small companies to attract analyst coverage and an investor following. In addition, the new Sarbanes-Oxley regulations saddle public companies with more compliance costs and potential liability than their private counterparts. (The CEO and CFO, for instance, must sign off on the company's financials.)
But as it stands, something wasn't too sweet about Daily's offered deal. The board rejected his $38 per share offer and actually sought out other proposals. However, none of the offers were acceptable to Daily. This week, he reiterated his intention of buying the company; he's now offering $43 per share.
Given that management has explored its options, and that Daily has indicated he will not "roll over" his 11.5% stake of the company into any of the deals on the table, the price for shareholders isn't likely to move much.
Looking at the prospects, I think shareholders aren't likely to get full value here. The founder really wants this company -- and while he's willing to pay more, a look at the company's cash flows and growth suggests he's still getting a good deal.
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Fool contributor Tom Taulli does not own shares of any company mentioned in this article.
