After winning the proxy fight against Gobble, we scheduled a special shareholders' meeting to discuss our proposal to take the company public. Every shareholder, including a representative from Gobble, was present for the question and answer session. We found, to our surprise, a fair amount of misunderstanding as to what going public meant. One of the early questions was which stock exchange would sell the company stock. Mary Jo, our CFO, explained that stock exchanges do not buy and sell shares of stock; they provide a market for people to "exchange" cash for shares. A stock exchange provides the same service to stock investors that a race track provides to horse players. An exchange and a race track each provide a place to trade stocks or to bet on the ponies respectively.
She went on to explain that different exchanges have different requirements for a company to have its stock listed on the exchange for trading. In addition to governance requirements, exchanges also have minimum requirements for income levels, number of shares held by the public, number of shareholders, trading prices and market value of publicly held shares. Two of the most widely recognized exchanges are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation (NASDAQ). The NASDAQ was the first electronic stock market. Any company listed on the NYSE must have a minimum annual pre-tax income of not less than $2,000,000 with not less than 1,100,000 of publicly traded shares held by not less than 400 shareholders. Those publicly held shares must have a minimum trading price of $4.00 per share and a market value of all such shares of at least $100,000,000 (although the combined shares' market value is reduced to $40,000,000 in the instance of an initial public offering (IPO). The listing requirements of the NASDAQ are similar to those of the NYSE. Many of the largest public companies are listed on either the NYSE or the NASDAQ. Going to the other end of the spectrum, very small companies list on either the Over the Counter Market or the US Pink Sheets. The Over the Counter Market is formally known as the Over the Counter Bulletin Board (OTC). The other exchange for small companies is the US Pink Sheets, so named because years ago the lists of broker-dealers who traded unlisted shares of small companies were printed on pink paper.
Another shareholder asked if we would be using our bank to handle the process. Mary Jo explained the difference between a commercial bank and an investment bank. A commercial bank is authorized by the government to take deposits and lend the money to borrowers. It has nothing to do with stocks. An investment bank, on the other hand, has nothing to do with deposits, bank accounts and loans. It is involved only with investments, but is also regulated by the government. Some of the larger institutions engage in both activities, but they are the exceptions. Although engaging in both types of financial activity was once prohibited, this barrier, the Glass-Steagall Act, was removed in 1999 in the US. Some say that allowing institutions to engage in both businesses led to the 2008 financial crisis, when credit froze on a world wide basis, leading to bank failures and a deep global recession.
The last question was at what price we intended to offer the stock. Mary Jo said, "We do not know what the stock price will be." The price is set by the investment bank which helps BBE go public after a great deal of study of BBE's financials and what the investment bankers think the investing public will pay for its shares. An informal poll of the shareholders showed that they were almost unanimous in their approval of taking the company public. With this show of support, we start the process of locating an investment company to work with us.
Comments are always welcome.