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I noticed that some companies have only 100,000 market cap.

And it's listed company that you can even buy its shares easily. The turnover rate is even > 100% which means it has enough liquidity.

What would happen if I use my money to buy all its shares? Just wondering...

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    HMNY CALI and some – AGamePlayer May 11 at 9:28
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    You won't be able to buy 100% of the shares if some people refuse to sell. To acquire 100% of shares, you usually have to pay above the market capitalization in order to convince most people to sell to you. – Flux May 11 at 10:31
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    When stocks get low enough they get delisted and HMNY is delisted. What would you hope to achieve by buying the company like that? If you have a good business plan for digging MoviePass out of the grave then by all means buy the company. If not then you might as well just burn your money. – MonkeyZeus May 11 at 18:01
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    In short, private equity firms do this all the time. – WBT May 11 at 23:30
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    Note: just because shares have a listed price doesn't mean you can buy them for the listed price. You buy shares from people - you both have to agree on a price for trade to occur. Market cap is essentially a measure of trust shareholders have in the company - plenty of companies have a market cap lower than their total assets (and vice versa), but that doesn't mean you can buy the whole company for that amount (even ignoring regulations). It's not a price, it's another way of estimating the expected value of the company - including its future prospects. Don't forget you can "buy" debts too! – Luaan May 12 at 7:16
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You're buying from sellers, sellers are more or less willing to sell

Always remember when you buy a share if means someone was found willing to sell it to you at an agreed price. The quoted price represents the lowest price at which a random buyer could buy one extra share. That price corresponds to the owner that is the most willing to sell.

The more shares you buy, the further you get past those willing to sell, so the more you get to people that aren't so willing to sell, which means higher price, possibly much higher price.

The notion of "Market Depth" conveys this: a shallow market depth means that after buying relatively few shares, you get to shares that you simply can't buy.

Market depth is the market's ability to sustain relatively large market orders without impacting the price of the security
https://www.investopedia.com/terms/m/marketdepth.asp

Example

Say the company has 99,999 shares issues and a current trading price of $1; you might be able to buy the first 49,999 for 1$ each*, but the current shareholder(s) know that selling you that last share gives you control of the company. If they don't want that, then that last share may become very expensive indeed!

*In reality if you start to buy large volumes of anything you'll move the price, but let's keep the example simple.

EDIT: Let's also think about how much the price might move even without the risk of you owning more than half:

Start price = S0 = 1$
Increase = r = 0.01% per share bought (that's not a lot right?)
Shares to buy = N = 50,000

Final share price = S0 * r^N = 1 * (1.0001)^50000 = 150 $
Total spent = S_0 * (1-r^N)/(1-r) = 1 * (1-1.0001^50000)/(1-1.0001) = 1.47 $m

Set the rate a bit higher:

Increase = 0.02% per share
Total = 110$m !!

That doesn't look so cheap any more!

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  • Hi @David258. Your answer is informative, yet on first read it may look somehow "steeped", especially because of the first sentence with technical term. It might be more appreciated by readers unfamiliar with the topic (the typical visitor) if the answer started with plain words, the introducing technical word. I'll offer an edit, feel free to review/change/comment. – Stéphane Gourichon May 13 at 8:24
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    The "bidding the price up" is simply a generalization of the fact that 1% of shares might be owned by people willing to sell them for $1.00, another 1% by people who wouldn't sell for $1.00 but would for $1.50, another 1% by people who wouldn't sell for $1.50 but would for $2.00, etc. If you want to buy 2.5% of the shares, you'd have to spend $1.00 each for the first 1%, $1.50 each for the next 1%, and $2 each for the next 0.5% even if nobody reacts to what you're doing. – supercat May 13 at 15:31
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You are often obliged to notify the regulator when you have a decent chunk of stock (5% or 10%, say). So, one should take proper advice before attempting this sort of thing. If you obtain a majority of the shares, you can call an EGM (extraordinary general meeting) sack the directors and appoint new ones. Again, there's a whole pile of legal responsibilities that come with that.

In the case of HMNY, since it is in administration you can't appoint directors. It's 99.9% likely that you get a letter from the Chapter 7 trustees explaining that after liquidating the company, paying its creditors and deducting their fees the shareholders will be getting nothing.

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    Well, you would have an opportunity to write a business plan to get the company back on its feet, and try to get it converted from chapter 7 to 11. This would assuredly involve you contributing a lot of your own capital, which would be lost if the effort failed. Generally that's a silly thing to do when you can just hire the braintrust, and then buy the loose assets at bankruptcy auction. – Harper - Reinstate Monica May 11 at 19:59
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    “since it is in administration you can't appoint directors” - Sorry I don't quite understand this. Why you can't appoint directors? – AGamePlayer May 12 at 2:47
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    @AGamePlayer HMNY is bankrupt, meaning that they owe their creditors more than they're able to pay. When a company is in bankruptcy, the courts supervise the operations of the company to make sure that the company doesn't divert money that it's supposed to give to creditors. – cpast May 12 at 5:45
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    Another obligation that may rise when you buy a lot of the stock is that you must offer to buy the rest of the stock when you get a controlling share. If you're really looking to get 100% ownership, there may even be a point where you can compel the minority shareholders to sell for a fair price. I believe the cut-offs are 30% and 90%, respectively, in Finland – HAEM May 12 at 7:52
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Yes, if you hold 100% of the shares, you own the company.

But the problem with "buying all the shares" is that you can not buy what isn't for sale. The current holders of those shares need to be willing to sell them. If you try a hostile takeover like that, then you might notice that a lot of shareholders are not interested in selling at this time:

  • They might assume the price will raise in the future.
  • They might not just be speculators but have a personal stake in the company. They might be employed there or they might have a strategic partnership with the company. So they don't want it to be taken over by someone they don't even know.
  • Or they might just not pay attention to the market and overlook your buy offer.

In order to convince these shareholders to sell to you, you might have to offer them a price which is far higher than the price the company is listed at right now.

But you might not even need 100% of the shares to take ownership of a publicly traded company.

Depending on jurisdiction, owning 90%-95% of shares might permit you to perform a squeeze-out - forcing other shareholders to sell to you at market price, no matter if they want to or not.

Owning 50% + 1 of the shares gives you a shareholder majority. This doesn't technically make you the sole owner, but gives you a high level of control over the company. You can now make any decision which requires a shareholder majority by yourself.

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  • Many of the more "interesting" decisions require more than 50% of the shareholders to vote in favour. In England and Wales, these require "special resolutions" and 75% of the shareholders. – Martin Bonner supports Monica May 14 at 15:51
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Things to consider:

  • the number of outstanding-shares versus the public-float
  • the amount of debt that the company has and including the possibility of a preferred share issue
  • cash expenses versus cash revenue
  • the stock market doesn't offer a large number of shares at a fixed price
  • merger paperwork is required with securities regulators

The reason to consider these is that companies are often bought just to get their stock market listing.

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    Whilst useful information for someone seriously considering such a move (who almost certainly doesn't need the advice anyway), it doesn't answer the OP's questions which were: "why are some listed companies so cheap in the market?" and "what would happen if I use my money to buy all its shares?" – JBentley May 12 at 14:28
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    What would happen if the OP attempts to buy all the shares on the stock market of a company with little value ? The OP might not get all the shares because all the shares may not be on the stock market. The OP might not be able to buy all the shares because on the stock market the price goes up when there is buying. If buying a large percentage of a company then merger paperwork is required by regulators. And of course, the buy could be a mistake if there is too much company debt or a mistake if the company is quickly spending its cash such that the OP might be making a mistake. – S Spring May 12 at 15:40
  • You should edit that into the answer. – JBentley May 14 at 10:52
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If you buy up 100% of the shares, you become the owner of the company. Effectively, you take it private. Then since you're the owner, you get to make all the decisions, e.g. fire this employee, work on this product, etc. Of course if your decisions turn out to be bad then you are the one who suffers, since it's after all your company's profits that drops.

One thing you won't have to do is justify your actions to the public. Publicly-listed companies have to declare their financials, their plans, etc, because the public is the owner of the company.

Here's an example of a company that was taken private several years ago: Dell. Note the buyout price was 25% above the original stock price - as Flux points out in a comment, you need to pay more to convince all the other shareholders to sell. However, once you own a certain portion of the company, you can compel the remaining shareholders to sell.

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    Whether ownership allows you to simply decide to fire this employee would of course depend on laws and contracts. – gerrit May 13 at 8:19
  • "One thing you won't have to do is justify your actions to the public" - that's a bit simplistic. 1. Even private companies (depending on jurisdiction) typically have to publicly declare at least some level of information. 2. A relaxing of disclosure rules would be triggered by de-listing, not by bulk acquisition of the shares (although with 100% ownership, depending on the exchange, you could be forced to de-list). 3. "Public" and "listed" mean different things. You can be a public company (with disclosure requirements) without being a listed company. – JBentley May 14 at 10:56
  • @gerrit: But almost always, you do get to fire the directors. As the new owner, you can lead the company personally or appoint someone to do that for you. – MSalters May 14 at 13:21

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