Public Shell Reverse Merger

The procedure followed in the public shell reverse merger is very desirable for the private firms to switch over to public companies. By embracing this type of a merger, the private firm intending to go public may avoid several hassles, which would have otherwise taken up a lot of time and money. However, this process too has certain disappointing consequences. The same has been documented below.

Public shell reverse merger is another option open to the private companies for going public. Public shell is a very important constituent of transactions pertaining to reverse mergers. Public shell is a company, which is publicly listed and it has no liabilities or assets. After a reverse merger, the only structure, which exists (of a publicly traded corporation)is the “external shell”. All matters related to the new company is decided by the private acquiring firm. In fact, the old name of the public corporation, its symbol(if any), all are changed in accordance with the private company. Information statement-8-K: Once the reverse merger concludes, information pertaining to the newly formed company needs to be detailed in the information statement, which is called the “8-K”. Details regarding issue of stocks, nature of business, names of the management team and directors are to be furnished in the 8-K statement. Audit performed on financial statements as per standards set by US GAAP is also to be furnished.

Advantages of public shell reverse merger:
Capital formation: Additional liquidity makes capital formation simpler, less expensive and less time consuming in case an offer has to be completed.
Acquisition: With the help of public stock, acquisitions become less expensive.
Enhanced valuation: As compared to the companies, which are privately traded, the publicly traded firms enjoy higher valuations.
Low cost: The cost incurred for initial public offerings (IPOs) is more as compared to the public shell reverse merger.
Ownership dilution is less: In case of traditional IPOs, “ownership control” is more than in public shell reverse merger.
Risk involved is less: In the event of the market situation being less stable, there are chances that the initial public offerings are withdrawn even if upfront prices have been paid up.

Disadvantages of public shell reverse merger:
Confidentiality is less: The process of public shell reverse mergers require that all details pertaining finances need to be disclosed.
Expenses are more: Expenses incurred on investor relations, audit and legal matters is more.
Dilution of ownership: A percentage of equity is forsaken by the owners.


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Last Updated on : 29th July 2013