What does Delisted mean?
When we talk about a company that’s been delisted, it’s usually the end of the line for that stock in regards with being listed on the ASX. Delisting can occur when a company no longer meets the requirements of the ASX or it can occur voluntarily or involuntarily.
Reasons for delisting:
- Companies can be taken over by another company or merged with another company.
- They can also have solvency issues and eventually go into liquidation.
In regards to the ASX listing rules, a company can be removed from the exchange
- If the company has asked to be removed.
- If the company breaks a listing rule or is unwilling or unable to comply with a rule.
- It has not quoted securities.
- Or is appropriate for other reasons.
- When company securities have been suspended from quotation for more than 3 years.
- If the company fails to pay for listing fees.
A great deal of companies are delisted due to takeover, merger, illiquidity of their securities, the cost of listing and failure. Company failure lies behind many “changes of activity” where company’s fail with one activity and formally take on another. There are instances companies change their name to disassociate from their past failures. Other reasons companies may choose to delist can include violating regulations and failing to meet the minimum financial standards. Standards can include the ability to maintain a minimum share price, financial ratios and level of sales. When a company doesn’t meet listing requirements, the listing exchange would issue a warning of non-compliance, if this continues the exchange delists the company’s stock. Involuntary delisting’s are usually signs of the company’s poor financial health or poor corporate governance and warnings issued by the exchange should be taken seriously. For example, in April 2016 five months after receiving a notice from the New York Stock Exchange (NYSE), the clothing retailer Aeropostale was delisted for non-compliance. The following month the company filed for bankruptcy and began trading over the counter.
What happens to delisted companies?
When a company get delisted the stock no longer trades on one of the major stock exchanges, it is a negative effect as it often happens when the company goes bankrupt or is approaching bankruptcy.
Ownership: The rights you hold with the stock become useless. As delisting takes place due to bankruptcy, it normally wipes out original shareholders in favour of newly issued stock. By holding onto delisted shares, you won’t receive any shares in the company when the emerging from bankruptcy.
Decline in value: Before stocks get delisted, an announcement is made to the marketplace. Sometimes companies will voluntarily delist its shares and make the announcement itself, other times the stock exchange will announce that the company is no longer meeting listing requirements. As delisted stock can be difficult to sell, a lot of investors sell after a delisting announcement, it turn driving prices down. This is common in cases of bankruptcy as there is no use holding on to delisted shares.
Decline in liquidity: If you are a shareholder in stock, you’re free to sell the stock to whoever will buy it. Your trade doesn’t necessarily need to take place on the stock exchange. However, one of the reasons for the existence of the stock exchange is to provide liquidity for investors. Liquidity refers to the availability of buyers and sellers for a given stock. Usually when you want to sell a stock, you simply enter an order with your broker and your share will find their way into the hands of a willing buyer. However, if your stock gets delisted it will usually need to be traded on the “over the counter” market, that doesn’t give easy access to buyers and can be difficult and sometimes impossible to sell your stock.
Private buyout: If a company decides to go private instead of remaining publicly traded, it is essentially buying out existing shareholders. In exchange for your shares, the company will offer you cash. After the buyout, the company shares will be delisted and if you don’t accept the buyout offer the shares you keep will become worthless upon delisting.