Why so many stocks are disappearing
They are among the largest and best-known corporations in the United States - bastions of the capitalist system: Allied Stores, American Broadcasting Companies, Beatrice Foods, Firestone, General Foods, RCA Corporation, Safeway, White Consolidated, and Crown Zellerbach, to name just a few. They have also been among the best-known companies on the nation's major stock exchanges.
Not anymore. These corporations - and hundreds of others - have gone private or disappeared as individual stock entities that investors can buy on one of the stock exchanges in the United States.
``Delisting'' has swept Wall Street in recent years, with hundreds of companies disappearing from the stock market listings in the daily newspapers. Many of the companies were part of a corporate merger or takeover process.
Others were taken private as a result of a corporate buyback, or a leveraged buyout (LBO). Case in point: Safeway Stores, once the nation's largest grocery chain, but now a much smaller version of its former self.
Whatever, the move toward more and more companies going the route of privatization is well under way, says Jerrold H. Mulder, a vice-president and market strategist with Kidder, Peabody & Co.
In time, the privatization trend ``may play itself out,'' Mr. Mulder says. But for now, given the push for more and larger LBOs, there ``is no end in sight.'' Mulder notes that the New York Stock Exchange has ``delisted'' almost 500 securities over the past five years and some $370 billion worth of common stock has been retired.
Add in current takeover targets Pillsbury, Kraft, and RJR Nabisco, Mulder says, and an additional $40 billion worth of common stock would be removed. On Nov. 29, takeover specialists Kohlberg Kravis Roberts & Co. reportedly offered over $102 a share for RJR Nabisco.
``One should be concerned about LBOs because of our debt-ridden society,'' says Peter Eliades, who publishes Stock Market Cycles, a Los Angeles newsletter. ``The minute we come close to a recession, many of these huge companies will be in danger because of their enormous debt,'' Mr. Eliades says.
That also means, he says, that employees of the LBOs face the threat of layoffs, with all the economic challenges which that can mean for local communities.
At the same time, Eliades says, he is not troubled just because some companies are no longer publicly listed on stock exchanges. ``Whether a company chooses to be listed, or not to be publicly listed, is not really a concern for the economy as a whole,'' he says. He is concerned about the debt associated with delisting because of an LBO, however.
``If entire industries were to be delisted as public companies, that would be of concern,'' says Walter Frank, chief economist at Donoghue's Moneyletter, of Holliston, Mass. But thousands of companies continue to be listed, Mr. Frank says, including many new companies eager to raise capital in the securities markets.
``Look at the growth of the over-the-counter market,'' Frank says. ``And the universe of markets has grown. We now have global markets, with funds moving back and forth between markets.'' There was, he says, a movement toward delisting in recent decades when companies put together giant conglomerates. Since then, he notes, some of the former subsidiaries have spun off and are once again independent public companies.
``The fact that a company disappears from an exchange does not mean that it is somehow less accountable,'' says Robert Hamada, deputy dean and professor of finance at the University of Chicago's Graduate School of Business. Professor Hamada finds LBOs to be in many ways more accountable to shareholders, in the sense of management's effort to ensure shareholder value and create long-range growth.
There is a question of accountability, however, in the case of some takeovers and mergers, Dr. Hamada argues, particularly where the parent firm is a conglomerate. Hamada also believes that US exchanges, such as the New York Stock Exchange, need to be more international in their listings. Merely because a US company has been taken over by a foreign firm, he says, does not mean the company is no longer ``listed.'' It is listed, only abroad.
In time, Mulder suggests, ``the LBO drive will play itself out.'' Rising interest rates, he believes, will act as a break on some LBOs, given the intricacies of the debt-financing packages that are required.
Still, management and investors often have different views of the markets, Mulder says. Investors like to focus on reported earnings, while management looks at more internal matters such as cash flow, real estate, or brand names. At the same time, management often finds itself burdened by the intrusions - or short-term objectives - of stockholders. ``Many conservative growth companies no longer need new capital,'' Mulder says. ``You can grow without having to go to the public for cash,'' he says.