BlackBerry (NYSE:BB) became the latest troubled company to bring in investment bankers to explore strategic alternatives that may include taking the smartphone pioneer private.
There are plenty of advantages to being a public company. It's easier to raise money. Stock options can attract and retain desired executives. The visibility also helps, especially if it happens to be a successful consumer-facing company.
However, there are also some good reasons to go private. A company that's struggling financially may find it easier to orchestrate a turnaround behind the scenes. There aren't investors to please every three months, forcing companies to sacrifice long-term goals for short-term profit objectives.
If BlackBerry can turn things around, it has a much better chance of succeeding behind the constant scrutiny of Wall Street. Let's look at a few other companies that should join BlackBerry in exploring going private.
The leading small-box consumer-electronics retailer was a surprising star earlier this year. The stock had more than doubled by the time it peaked.
Then gravity kicked in.
RadioShack's in trouble. The push to specialize in wireless service hasn't paid off. Sales are falling. Margins are contracting. Losses are widening.
Analysts see RadioShack's loss doubling to $1.19 a share this year on a 12% slide in sales. It may be too late to save RadioShack, but if it's not, the best path is to get away from these quarterly disappointments as a public company.
There's unrest in CityVille. Words With Friends has turned to swearing. Draw Something has become an exchange between gunfighting duelists.
Zynga's still the top dog in social and casual games, but there isn't the same kind of money in these free and nearly free diversions as the market envisioned when it bought into Zynga's pre-IPO hype. The company went public at $10 two years ago, and it's been mostly downhill ever since.
There was a glimmer of hope last month, when Zynga landed Xbox's president to serve as its new CEO. However, turning Zynga around won't be easy for Don Mattrick, and this week's management shuffle, in which three key executives were let go, illustrates that some makeovers are better performed in private.
Bookings at Zynga have been declining as fickle gamers go from game to game. The company hasn't been able to duplicate its earlier successes, too. Bookings were down a brutal 38% in its latest quarter.
The good news is that Zynga still has a lot of its IPO money. Armed with more than $1.5 billion in cash and marketable securities, the stock isn't trading for much more than its liquidity. This would make Zynga a cheap purchase if a buyer doesn't have to pay much of a premium.
Cisco Systems (NASDAQ:CSCO)
Shares of Cisco took a 7% hit on Thursday after posting lackluster guidance. The networking-equipment giant also stunned the market by announcing that it will lay off off 4,000 employees, or 5% of its workforce.
Cisco is in better shape than the other names on this list, but something isn't right if a cash-rich company that's still growing is scaling back its payroll. Cisco sees something, and it may be better to go private now than before the perceived weakness consumes the tech bellwether.
Cisco would be a tough company to take private. It was the country's most valuable company for a brief spell before the dot-com bubble popped. However, one would think that some of its missteps in recent years, including the now discontinued Flip camcorders and Umi videoconferencing platform, would've been less embarrassing if they had happened behind closed doors.
J.C. Penney (NYSE:JCP)
The struggling department-store chain is a textbook example of a company that shouldn't be public.
Ron Johnson's gamble in refreshing Penney last year was disastrous, and last week's boardroom drama in the aftermath of his ouster is a no-brainer symptom of a situation that could be easier remedied outside the daily stock-price gyrations that accompany and inspire the theatrics.
Plenty of retailers have gone private and come back stronger. J. Crew and Restoration Hardware are just a couple of recent examples. As a public company, Penney is simply wading around in a death pool.
This may sound controversial, but even Johnson's vision could've eventually worked if it didn't happen at a public company, where the first few quarters of disastrous comps cut the transformation short.
Penney's best shot at being around in five years is to be taken private sooner rather than later.