Demutualization

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Demutualization

Refers to the process that has come about as the result of many not-for-profit exchanges (mutual companies owned by groups of members) converting to for-profit and then shareholder companies in order to go public.

Demutualization

The process by which a mutual company becomes a publicly-traded company. A mutual company is a company owned by its members or users for the benefit of those members or users. In demutualization, the members give up their rights and receive shares in the company in return, which the (now former) members may then sell. Demutualization happens most often when a stock exchange owned by its members goes public.

As an aside, a mutual company should not be confused with a mutual fund.
References in periodicals archive ?
Drawing on the coordinated risk management hypothesis of Stulz (1996) and Schrand and Unal (1998), we argue that the managers of demutualizing insurers have a stronger incentive to maximize firm value.
First, confirming the prior literature, our analysis reveals that demutualizing insurers converted to the stock organizational form largely consistent with the maximization of firm value hypotheses.
private investment firm The Blackstone Group, said that some state legislatures view mutual holding companies as conversions that allow many benefits of demutualizing except they don't deliver value to policyholders.
For companies that may consider demutualizing, the question now is when is the best time, said Ernst & Young's Porrino.
Fully demutualizing liberates insurance companies from the confines of a mutual structure and can finance a competitive new corporate strategy.
Fully demutualizing can do more than finance new products, form alliances, and acquire companies.
For these reasons, the demutualizing firm is expected to underprice its issue, which would make positive initial returns more likely for these influential policyholders.
Demutualizing insurers direct an average of 45 percent of their stock toward policyholders.
Reinsuring in-force business is a strategy adopted by demutualizing companies to more accurately project earnings, he said.
Implicitly acknowledging this shortcoming, some demutualizing insurance companies, such as John Hancock Mutual Life Insurance Co., are searching for strategies to strengthen a perception of fairness and equity throughout the conversion process, including the pricing of the IPO.
Physician-owned mutuals, for example, were developed during the medical-malpractice crisis of the mid-1970s to provide doctors coverage when commercial insurers would not, and until recently, demutualizing would have defeated their purpose.
So far, Canada's demutualizing insurers have used proceeds of their initial public offerings to pay policyholders that wanted cash and to cover demutualization expenses.