Non-U.S. issuers may have compelling reasons to delist their securities from U.S. stock exchanges and exit the Securities and Exchange Commission (
“SEC”) reporting system under the U.S. Securities Exchange Act of 1934 (the
“Exchange Act”). Among the incentives to leave the system are cumbersome and expensive Sarbanes-Oxley governance and reporting requirements, the risk of U.S. securities law liabilities, the availability of improved foreign exchanges on which to list outside of the U.S., sufficient availability of capital overseas and in the private market, limited interest in the company’s shares resulting in low trading volumes and continuing management distractions that arise from the significant efforts needed to comply with U.S. disclosure and reporting rules. While there is no question that a U.S. listing can provide important benefits to some non-U.S. issuers, in many cases the costs and burdens of complying with U.S. requirements clearly outweigh these advantages.
Leaving the U.S. reporting system should not be confused with “going dark” or “going private.” After exiting the U.S. SEC regulatory and reporting scheme, foreign private issuers will often continue to maintain non-U.S. listing and trading markets which require public disclosure of material information irrespective of U.S. SEC requirements. In fact the most commonly used method of Exchange Act deregistration by foreign private issuers (Rule 12h-6) and the most commonly used exemption from the initial requirement to register under the Exchange Act (Rule 12g3-2(b)) both require that the issuer maintain a primary non-U.S. trading market. As a recent example, Allianz joined the list of substantial foreign issuers exiting the U.S. system by announcing a voluntary delisting on September 22, 2009. Allianz will focus its trading in Frankfurt, Germany and has delisted from the NYSE and plans to deregister under Rule 12h-6.
Foreign private issuers may leave the U.S. reporting system in connection with mergers, acquisitions or going private transactions or they may do so through a voluntary exit from the U.S. reporting system. This memorandum explains the complicated steps necessary for a non-U.S. issuer to delist and deregister under the Exchange Act with a focus on issuers that choose to leave the system voluntarily.
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