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05/05/2002
IPO/Shell Report
Table of Contents:
1. Introduction
2. What is a Reverse Merger?
3. Why do Companies do Reverse Mergers?
4. What is a Public Shell?
5. What is an IPO?
6. Reverse Mergers: A Case Study
7. Update: Recent public shell activity— BHUS
Introduction
We call this report by the above title because public shells are considered by many to be another form of Initial Public Offering (IPO). It is a faster and sometimes cheaper way for a private company to go public than starting from scratch. It is often called a Reverse Merger. We have a lot of new people subscribing to our premium service. If the following general information looks familiar to you, just scan down below to the “Update,” for the latest information about specific shells.
What is a Reverse Merger?
A reverse merger is a special situation whereby a privately held corporation merges with, acquires, or is acquired by a publicly held company. Typically the public company takes on the name and day to day operations of the private company. The private company takes over the "public" status of the public company (ticker symbol, free trading stock, state and federal registrations and filings, etc.).
Why Do Companies Do Reverse Mergers?
A reverse merger is an easy and fast way for a private company to go "public." The bureaucracy and expenses involved in the traditional way of going public makes merging with a public company a very popular alternative. Through a reverse merger, a private company can go public in a matter of days and at minimal cost. Traditional methods can takes months and hundreds and thousands of dollars. Another reason for a reverse merger is that a public company may wish to bring increased value to its shareholders by acquiring a successful and profitable privately held company. A reverse merger can be beneficial to both companies.
What is a Public Shell?
A public shell is a paper corporation that has the minimum required legal elements needed to hold a "public" status (a board of directors, many shareholders, free trading stock, ticker symbol, state and federal registrations, etc.).
What is an IPO?
An IPO (Initial Public Offering) is the traditional method that companies use to raise money and go public. This is where some sort of stock offering is completed and the privately held stock is registered with all 50 states as well as federal agencies and then sold to the public. Major brokerage firms usually handle all of the details. Completing an IPO can take months and cost a small fortune in legal fees. As a practical alternative, many companies simply merge with an already existing public company or shell.
In traditional IPOs, small investors are typically shut out of the process, as pre-IPO stock is reserved for high net worth individuals and institutions. Small investors usually cannot get into an IPO until after the stock trades on an exchange. By this time it may be too late, as the stock price often soars on opening day. Shells offer an alternative for small investors, as they have the chance to get in on the ground floor of a new publicly traded company.
Reverse Mergers: A Case Study
In 1970, with no cash and in an exchange of stock, Ted Turner gained control of publicly traded Rice Broadcasting (WJRJ-TV) using a little known maneuver called a reverse merger. Virtually insolvent, but with a bold vision and control of a public company, he was able to tap the capital markets of Wall Street. His stock in the former Turner Broadcasting System (TBS) now AOL/Time Warner became worth over three billion dollars.
In February of 1996, Wall Street’s top woman Muriel Siebert, who in 1967 became the first woman to buy a seat on the New York Stock Exchange., took her brokerage firm Muriel Siebert & Co, Inc., (SIEB) public through a reverse merger with J. Michaels, a liquidated Brooklyn furniture company.
The legendary Arman Hammer invested in a public shell company in the 1950’s and created an International company with 14,300 employee’s worldwide and operating revenue of $10.6 billion in 1996. It’s known as Occidental Petroleum Corporation (OXY).
While merging with a public shell is technically not an IPO, its effect on the two companies and shareholders can essentially be the same. The privately held company and its shareholders get stock that can be sold to the public while the public company and its shareholders get to benefit from the increased valuation brought in by the private company. The net effect is that the former private operating company is now public with the same business, officers, directors with its shares being traded on the OTCBB or NASDAQ.
We have seen shell companies go from pennies to dollars. A couple of years ago one called YNOT (now FRLK) ran from .20 to $25 in just six weeks after the company started putting out news. By the same token we have seen some sit around for years and literally not trade. Because of the potential they are certainly worth watching. If you get in one be prepared for a long wait. Do not count on anything. There is really only one strategy for best “playing” them. View them as an insurance policy for profits. If one runs you get to participate in a nice profit if a merger is ever completed or the shell purchased by a going concern. If you are in a hurry to make money do not just buy a shell. Put the shells we tell you about on a list for tracking purposes.
Update
Bach-Hauser, Inc. (BHUS: .044) closed up .015 or 50% on Friday on volume of 1.2 million shares. The average daily volume is 324,000 shares. We reported on this stock at .03 on May 1. Very rarely do we feature continued coverage of the same public shell. With shells, most of the time the volume dries up and the stock goes into a stagnant phase. But this one seems to be trying to make an exception, as the volume has been continuous and heavy. Could this be a special situation?
Bach-Hauser, Inc., formed on October 10, 1995, has been in the developmental stage since inception and has no operating history other than organizational matters. Originally, the Company's primary focus was to seek a company or companies with which it could merge or acquire. On September 3, 1999, the Company entered into a licensing agreement with TCR Environmental Corp, which designs, constructs, equips and operates waste management facilities for the recycling, composting and disposing of municipal and institutional solid waste, and the sale or other disposition of the resultant compost and recycled products. TCR currently operates a waste-processing facility in Aylmer, in Ontario, Canada, which will serve as a model for the turnkey waste-processing facility proposed by TCR to be manufactured and marketed throughout the world.
The total shares outstanding are reported as a surprising 15.1 million with a public float of 14.7 million. The 52-week range is .018 to .13. The chart shows a stock near the bottom of its range and attempting to climb higher. We cannot believe the volume as of late. If there is something behind this move we see this as a possible 100%+ gainer. |
