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Microcap & Penny Stocks : Corporate Vision (CVIA) -- Ignore unavailable to you. Want to Upgrade?

To: J.R. who wrote (525)	11/20/1997 12:20:00 AM
From: Brad	Read Replies (1) \| Respond to of 6654

J.R., There is a site that covers your question fairly well. I have copied the main part below in case you have any problem with your browser in accessing the site. Here is the site URL: gatewaysg.com Here is the main part of the applicable text: (Happy reading !! Hope this helps. Brad) --------------------------- Reverse Mergers An Alternative To The IPO Introduction Think for a moment about any company that has gone public over the years. Are there advantages that exist for this company because it is public? The answer is unquestionably - yes. The list of advantages of being public is numerous, with some of the more obvious being: Liquidity for shareholders, a recognized market-value of the company, stock to use for acquisitions, employee stock ownership benefits, and many others. We often ask people if they can describe the process of how a company goes public. Although phrased in many different ways, an Initial Public Offering or IPO is the inevitable answer. Even by industry professionals, going public is synonymous with the IPO. However, the reality is that the IPO is not a method of going public....it is a method of raising capital. The end result of the transaction is that the company ends up being public. Every aspect of the IPO revolves around a company raising capital - (the fees and expenses, the pricing or market-value placed on the company, the amount of stock that must be sold, the use of proceeds, the timing of the transaction, the market acceptance of the particular industry, the market condition overall and whether or not the IPO is even completed) The IPO is simply a capital-raising transaction. What about the company that wants the benefits of being public but does not have an immediate need to raise capital? An appropriate alternative may be the "Reverse Merger". .......An Overview Of The Reverse Merger....... Many privately-owned companies with no need for outside capital have recently discovered that publicly-owned pure shells can be used to convert private companies into public companies without the benefit of an underwriter or the burden of registration with the Securities and Exchange Commission. A shell is a non-operating company with stock owned by the general public. Shells come into existence when an operating company ceases doing business, or when it spins off a subsidiary. They can be categorized as "pure" or "cash heavy"; a pure shell has neither assets nor liabilities, and a cash heavy shell has cash retained after selling its assets and settling its liabilities. The conversion from private to public company is generally accomplished by a statutory merger which creates a single entity composed of the public shareholders of the shell and the assets and business of the private company. This combination of the shell and the private company is usually accomplished by a "tax exempt" stock-for-stock exchange. This method of becoming a public company performs a valuable services to the economy by permitting issuers to minimize the cost of going public and thus provides for a more rational allocation of economic resources. Management's decision to go public or to remain private is largely the product of cost/benefit analysis. Similarly, when choosing whether to go public through a shell or through a registered public offering, management seeks to determine which method yields the maximum benefit at the lower cost. So long as the Securities and Exchange Commissions' disclosure requirements are satisfied, the practice of going public through a shell can be expected to continue. .......Incidental Advantages Of The Reverse Merger....... To many companies with no need for outside capital, the incidental benefits of being publicly-held may be the key motivation for going public. Since raising cash is not their immediate objective, such companies should not be required to pay the price for public capital. They can obtain the incidental benefits of public ownership by merging with pure shells, thus saving the costs and avoiding the delays of public stock offerings. In such mergers the shells provide the public shareholders who are needed to create a market, and the private company provides the economic viability to justify public interest in the ensuing entity's stock. .......Keeping Shells In Perspective....... Although the benefits of public ownership can be obtained through the reverse merger process, the traditional and most popular method of going public is by means of an underwritten stock offering registered with the SEC. In most cases, this course is chosen for intangible but compelling considerations: the prestige associated with an underwritten public offering, the nationwide exposure and advertising of the offering, and the beneficial results which are expected in the future from association with the underwriter. On the other hand, the small company without a dramatic growth record will find it difficult, if not impossible, to obtain an underwriting by the kind of established and recognized underwriting firm whose sponsorship might be a decisive factor in convincing a firm to undergo a stock offering. If one were to find an underwriter willing to undertake an offering, the company will usually have to sell a comparatively larger share of the company's equity than would be the case if its stock were in the growth category most underwriters look for, and valued at a high multiple of earnings. Such companies may therefore turn to shells as an alternative to a public offering. In all cases, an informed choice will include an examination of the securities laws which may play a role in a choice among the alternatives. -------------------------