What does it mean that a stock is delisted?
A stock is delisted when it’s removed from a stock exchange. This can be voluntary, when the company chooses to do so for strategic or financial reasons, or involuntary, when the exchange forces the company to delist.
A delisting of shares can be contrasted with an initial public offering (IPO), which is the process of a private company going public. This is when a company will put its stocks up for sale to the public and its shares are traded on a stock exchange.
Why does a company get delisted from the stock market?
There are two ways in which a company can be delisted from a stock exchange – voluntary and forced.
Voluntary delisting
Voluntary delistings occur when public companies choose to delist from an exchange, usually resulting in that company trading privately again. However, sometimes companies delist simply to move to another exchange.
Companies may want to delist for a number of other reasons:
- Reduce costs. It’s expensive to trade publicly. The costs to ensure compliance with regulators and laws can be enormous, so smaller companies might find it’s not worth it to trade publicly
- Make short-term profits. If a stock trades below its intrinsic value, the company may repurchase its own shares to profit over the short-term before delisting. This can also produce rewards for current shareholders, giving them considerable returns
- Undergo a buyout. When a company is acquired, the new controlling shareholders may want to make the company private
- Reduce decision-making time. Making decisions in a publicly traded company can take a lot of time, as the shareholders and the board of directors may both be able to vote. By removing the approval from shareholders for decision-making, companies can pivot faster
There are, however, disadvantages to voluntary delisting. If a company needs funding, they won’t be able to raise money through public markets. And, customers may see delisting as a sign of trouble in a company, even if it’s voluntary, potentially leading to a loss of market share.
Forced delisting
Stock exchanges force companies to delist if they don’t meet the regulatory requirements of the exchange they’re listed on. For example, the London Stock Exchange (LSE) requires all listed companies to hold a minimum market cap of £700,000. Additional requirements can include filing annual reports by a specific date or having a stock price above a certain value.
Discover more about stock splits and share buybacks and how these affect a company’s listing.
What happens to shares when a company gets delisted?
Shares don’t disappear after a stock delisting, but this does change how and where shareholders can sell or buy them. Additionally, the share price may or may not be affected by a stock delisting.
Let’s explore in more detail what happens to shares when a company is delisted.
How traders and investors are impacted when stocks are delisted
When a company delists, investors still own their shares. However, they’ll no longer be able to sell them on the exchange. Instead, they’ll have to do so over the ounter (OTC).
The value of shares doesn’t automatically rise or fall with a delisting, but when an involuntary listing takes place, it’s often a sign that a company is approaching bankruptcy. In this case, there’s a chance investors might lose their investment.
When a company delists voluntarily to trade privately, they sometimes offer shareholders additional benefits such as warrants, bonds, and preferred shares.
Traders can potentially profit from voluntary and involuntary delistings. If a company delists voluntarily, its share price can increase depending on the reasons for the privatisation. In this case, a trader can open a position to ‘buy’ (go long) if they think the share price will increase.
If the company is forced to delist, it often spells bankruptcy or causes investors to lose confidence. In this case, traders may open a position to ‘sell’ (go short) if they think the share price will fall.
Examples of delisted stocks
Burger King
Multinational fast-food chain Burger King delisted voluntarily from the New York Stock Exchange (NYSE) twice. The first time was in 2010, when it was privatised after a buyout by 3G Capital. It then relisted two years later but delisted again in 2014 when it merged with the coffee chain Tim Hortons. This merger led to the creation of a brand-new company called Restaurant Brands International. This company now publicly trades on the Toronto Stock Exchange (TSO) under the ticker QSR.
Dell Computers
Tech hardware manufacturer Dell Computers delisted from the Nasdaq and Hong Kong Stock Exchange (HKEX) in 2013 following a buyout by Silver Lake Partners for $24.4 billion. Dell relisted in 2018 on the NYSE at a share price of $46 under the ticker DELL.
US Airways
US Airways has undergone a forced delisting twice, both times after filing for bankruptcy. In 2002, the NYSE forced it to delist and two years later, the Nasdaq delisted it. In 2005, it merged with America West Holdings and in 2013, merged with American Airlines Group, which is now publicly listed under the ticker AAL.
China Mobile Ltd
An interesting delisting example occurred in 2021 due to pronouncements made during the Trump administration. The former president barred US citizens from investing in publicly traded companies with apparent ties to the Chinese military. This resulted in three Chinese telecommunications companies being delisted from the NYSE. These were China Mobile Ltd, China Telecom Corp Ltd and China Unicom Hong Kong Ltd.
Stock delisting summed up
- A stock is delisted when a public company is removed from a stock exchange
- Stock delistings happen either voluntarily or when stock exchanges force companies to delist
- Shareholders still own the shares but can only sell them OTC when the stock is delisted
- Stock delistings don’t inherently devalue shares, but forced delistings can be a sign of impending bankruptcy, leading to a drop in share value
- Stocks are delisted all the time, such as Burger King in 2010 and 2014, Dell in 2013, US Airways in 2002 and 2005 and three Chinese telecommunications companies in 2021
Discover more about stock trading and improve your knowledge through our educational content:
- How to buy and trade shares
- Thematic investing and basket trading
- IPO trading
