I currently own a small stake of stock (in my 401K) for a company that may be getting ready to be taken private in a leveraged buy out. What happens to current shareholders in that situation? Will we be compelled to give up their shares? Is there a good online guide to how this type of purchase normally impacts existing shareholders?

rfmjbs,

I currently own a small stake of stock (in my 401K) for a company that may be getting ready to be taken private in a leveraged buy out. What happens to current shareholders in that situation? Will we be compelled to give up their shares?

No one can compel you to sell your shares but it's usually the right choice. You don't want to be an orphan shareholder in a privately run company.

intercst

What happens to current shareholders in that situation?

You will be offered a fair price for your shares. It is usually up to your board of directors to negotiate a good price for the existing shareholders. Sometimes you get offered shares in the new company, but as yours is being taken private, in this case you will be offered cash.

You don't have to take the offer, but as noted before, usually you will want to accept the offer unless you think there will be a bidding war resulting in a better offer later.

In a 401K, the transaction should be tax free. So you will be free to reinvest the funds in any of the other investment choices in the plan. But another aspect is that the new owner may modify the 401K plan. That can give you the chance to roll your 401k into an IRA, where you have more control of investment choices. Your 401k can also be frozen for several months while the transfer is made. So plan ahead and make any adjustments to wait it out if necessary.

I didn't think about that aspect. Not that the company cannot change the 401k however they want to now :)

rfmjbs,

In a 401K, the transaction should be tax free. So you will be free to reinvest the funds in any of the other investment choices in the plan. But another aspect is that the new owner may modify the 401K plan. That can give you the chance to roll your 401k into an IRA, where you have more control of investment choices. Your 401k can also be frozen for several months while the transfer is made. So plan ahead and make any adjustments to wait it out if necessary.

I didn't think about that aspect. Not that the company cannot change the 401k however they want to now :)

I am a little confused now. Are you working for "the company" that is going private or do you just own shares of "a company" in your 401k that is going private?

Gene

All of the above, I both work for the company, and have a very small amount of company stock $500 worth in my 401k with that company, that I bought way back when it was cheap. I hadn't ever read about what happens to shareholders choices during or after an LBO and was curious. As for the 401K changing its rules, the company could at any time change what funds or stocks they offer within the plan, and they can force us to sell everything and roll it to new funds, including the company stock I suppose. They have done this before on a smaller scale, changing out whole families of funds by changing our provider, that sort of thing.