Wednesday, June 23, 2010

Reverse Mergers

Roddy Boyd has a fascinating entry on his blog about reverse mergers in the Chinese context.

A reverse merger is a transaction in which the role of acquirer and target are the reverse, in substance, of what they are in form. In the two trans-Pacific cases that especially interest Boyd, a dormant shell of a U.S. company (which, was, nonetheless, exchange listed) formally acquired a Chinese concern. The Chinese company then in essence became the "new" operation, and inherited that public listing.

As Boyd observes, this gives the Chinese concern "a quick route to the deep and liquid U.S. capital markets without the scrutiny and expense of a traditional initial public offering process."

I suspect Boyd is being too cynical about such transactions, though, Personally, I thnk that a clever way of short-circuiting regulations is a good thing, and I'm on the side of the hot-wirers. Of course, it is good to work within the law of both of the countries involved but ... that's the point, isn't it? The reverse merger is a way of working within the law without letting it massage you into a lump.

Meanwhile, Carl Icahn ....

Icahn has recently issued a letter strongly denouncing the management of Lions Gate Entertainment. Icahn's designs on Lions Gate are not news to anyone, least of all readers of this site. Still, the tone is sharper now.

In a letter to "members of the board" dated June 11, Icahn professes himself "truly mystified by some of your actions -- and your inaction -- in the face of the abject failure of the current management team to deliver value to shareholders...."

He also cautions the board against engaging in any "inappropriate defensive acquisition or other transaction in an attempt either to thwart our [tender] offer or to dilute our position following the expiration of the offer. We will not sit idly by if you attempt to employ inappropriate defensive tactics."

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