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 Going Public, Chinese Style-Reverse Merger |
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AttorneyAtLaw
头衔: 海归少将
声望: 讲师
加入时间: 2004/10/25
文章: 838
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作者：AttorneyAtLaw 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
Going Public, Chinese style
To get listed overseas, companies are getting U.S.-traded outfits to buy them
Slide Show >>Big-ticket IPOs in New York and Hong Kong for Chinese banks and insurance companies make headlines. But in recent years another class of Chinese company has been quietly tapping the international capital markets. Enterprises that don't have the heft or profits for a splashy initial public offering are finding they can get a coveted overseas listing through a reverse merger.
Here's how it works. The Chinese business is typically acquired by a U.S. shell company that is worthless, except for one thing: It's publicly traded. The American board then resigns, the Chinese board takes over, changes the company's name, and issues new stock to hedge funds and other new investors, raising millions of dollars in fresh capital. One example: Sinovac Biotech Ltd. (SVA ), a respected Beijing-based maker of vaccines, executed a reverse merger in 2003 and subsequently raised $12 million.
For more and more Chinese companies, a reverse merger is faster and less onerous than an IPO. Sometimes the process takes as little as a few months, says Peter D. Zhou, managing director of American Union Securities Inc., a New York firm that has helped broker 10 such deals since 2005 and is currently working on another nine. One is the pending takeover by Carson City (Nev.)-based Ticketcart Inc. (TKTC ), a defunct online retailer of printer cartridges, of Tieli Xiaoxinganlin Frog Breeding Co., which markets nutritional supplements made from Chinese forest frogs. All told, some 150 Chinese companies have taken the reverse-merger route since 2005. "The Chinese are realizing that there's a lot of money here," says Zhou.
Many in the financial world aren't happy about the popularity of these takeovers. Something few Chinese executives consider is that Americans generally shun such shells, as they typically trade over the counter, says Neil A. Torpey, a Hong Kong-based partner with law firm Paul, Hastings, Janofsky & Walker. "Nobody follows them, there's no market in the shares," he says. "So after having gone through a lot of time and expense and effort, the underlying purposes aren't realized."
So why do Chinese companies bother? One reason is simple: They have few other options. Small companies in the country's rust belt or in industries that aren't sexy are unlikely to draw the interest of the venture capital and private equity investors swarming over China. Plus there's a two-year wait for a listing on the booming Shanghai or Shenzhen stock exchanges. "If a U.S. financier says I can get you public in two months,' that's a pretty good pitch," says one American hedge-fund manager who wants to remain anonymous because he has invested in a Chinese company that executed a reverse merger.
Another reason Chinese companies favor these deals is that there's less interference from investors. Reverse mergers are usually followed up with a private placement. The hedge funds that typically buy these shares are content to allow management to continue operating unfettered, whereas private-equity outfits would typically demand a greater say in decision making, along with board seats.
Some Chinese companies involved in such deals have, however, found themselves in legal trouble. Fertilizer maker Bodisen Biotech Inc. (BBC ) and now-defunct China Energy Savings Technology Inc. face shareholder class actions alleging improper disclosure.
Still, investors argue there's nothing fundamentally disreputable about reverse mergers. Some well-known Chinese companies, such as Sinovac and Shenzhen-based battery maker China BAK Battery Inc. (CBAK ), have graduated from the OTC market to the American Stock Exchange or NASDAQ. "As we see more of them grow to multimillion market caps, there is more research, more liquidity in the stocks," says Mark Fleishhauer, Hong Kong-based portfolio manager at Jayhawk Capital Management, a hedge fund that invested in 11 reverse mergers in 2005, including BAK Battery.
But even fans of the reverse-merger option recognize its shortcomings. With estimated annual revenues of $15.4 million in 2006, Sinovac would probably not need to take the reverse-merger route today. Says Helen G. Yang, Sinovac's international business manager: "If we wanted to list now, an IPO would be a better choice."
All comments:
Going Public, Chinese style
Nickname: Clifford Capital
Review: Well written and informative. We work with people confronting the Go Public decision. 1) China presents a great investment opportunity; thorough analysis of specific assets is always required. 2) Well managed businesses from an operating and communications standpoint, can use the reverse merger vehicle as a cost effective means to become public. 3) Entrepreneurs need to be educated on what it means to be Public, not all Companies are suitable to be public. 4) Shareholders of public shells generally sell their position following the merger. 5) Comparing Chinese and the total reverse mergers statistics would be useful, recognition of an incubation period would make statistic more powerful. 6) Companies are not getting good advice. 7) Businesses going public need to recognize that the reverse merger is the beginning of a process not a finish line. If you need any clarity or help, please contact me at [email protected] or 416 418 9802.
Date reviewed: Apr 13, 2007 7:25 AM
Nickname: dpbusche
Review: I think this is a great avenue. I have a company which tanked and would be a great takeover opportunity, China Cable and Communications.
Date reviewed: Mar 4, 2007 7:27 PM
Nickname: Patrick
Review: This last week the stock market went soft, and all of the companies that were in the IPO pipe to go public via the traditional IPO process were suspended indefinitely. Imagine you are the CEO of a midsize company and have spent a year and half and over a million bucks to go public and the underwriter stops the process because he won't make a killing on your IPO. The Reverse Merger offers companies a real and reliable method for going public. As far as maintaining a stock price, that is the job of the CEO, no matter how they went public. Stock is a product -- it needs advertising and promotion in order for people to buy it. The best stock in the world is going to tank if no one knows about it. On the other hand terrible companies' stock can soar with the best companies if promoted correctly. So next time a CEO says "we just run a good company and the stock takes care of it self" -- short their stock.
Date reviewed: Mar 2, 2007 5:15 AM
Nickname: Neil
Review: This article "Going Public Chinese style", seems scary. I have some stocks in a Chinese Company, whose name is mentioned in this article. Does it mean I made a mistake? Does it mean I will lose my money? So far this company stocks are not doing well. I am under the impression I should hold on to it, and hope the stocks will take a turn towards the north in the near future. Any input on this matter is appreciated.
Date reviewed: Feb 27, 2007 9:35 PM
Nickname: Bruce
Review: I've been following these Chinese reverse mergers for nearly 2 years on my blog. I would caution anyone considering investing in them without doing a large amount of work. I've found more than one company where the numbers literally didn't add up in the financial statements. I've found a vast number of accounting issues and a great lack of accounting strength. But within those 150 companies are a small number of stars that eventually clean up their act and do quite well. It's difficult to find them and easy to make a mistake.
Date reviewed: Feb 27, 2007 6:55 PM
Nickname: nanheyangrouchuan
Review: "I find the Chinese are far more creative and practical than India and Russia (I have some funds in these two also)." Creativity can be good and bad. Must not need that inheritance much, better pull out by end of Q3 this year. All bets are off after the Olympics are over and insider selling will drive down the value of your investment by a large amount before you know what hit you.
Date reviewed: Feb 27, 2007 6:47 AM
Nickname: Shuang Cheng Attorneys at Law
Review: The reverse merger trend has existed more many years now. However, Chinese companies use the route particularly when they cannot or refuse to meet onerous US regulatory requirements relating to disclosure for an IPO/S-1 listing. It's dodgy and as Chinese companies grow, while they want the prestige of being listed and the potential to raise capital they are increasingly wanting credibility and that comes through a proper listing. www.shuangch.com
Date reviewed: Feb 27, 2007 4:23 AM
Nickname: Dave Luo
Review: Need a list of the most noteworthy Chinese IC design houses.
Date reviewed: Feb 26, 2007 11:30 PM
Nickname: pumpwatcher
Review: Sinovac is a cautionary example. A large block of the shell shares remained in the hands of a well-known promoter, who commissioned a widespread promotional campaign claiming that Sinovac had either the cure for swine flu or the cure for avian flu, or the cure for anthrax! This "home run stock" is more of a foul ball...
Date reviewed: Feb 26, 2007 10:40 PM
Nickname: China Law Blogl
Review: The accounting practices/transparency of many of these companies is highly questionable. A bigger problem, with many of these companies, is that after an investor gets taken for a ride and sues, how is he or she ever going to collect on the class action? Take the judgment here and start going after assets in China? That will be fun. www.chinalawblog.com
Date reviewed: Feb 24, 2007 2:14 PM
Nickname: Holly Garfield
Review: I am investing an inheritance mostly in China funds. I find the Chinese are far more creative and practical than India and Russia (I have some funds in these two also). India has weak manufacturing investment and Russia is still heavily government run and energy-centric. China is manufacturing staples that can be used world-wide, require a lower education level to create, and are in constant demand. India is service oriented, the bulk of the unemployed are not educated well enough for these jobs. Russia is still nationalized and political. Putin isn't likely to have a successor who will change. My China fund OBCHX and a 2nd MCHFX are both showing annual returns of about 70% since I started last fall. Hard to beat that. China is walking a tightrope, but the leadership does seem responsive and practical about walking that tightrope. It's the only tightrope in town for them. This continues my faith in the Chinese.
Date reviewed: Feb 23, 2007 10:50 PM
作者：AttorneyAtLaw 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 Going Public, Chinese Style-Reverse Merger -- AttorneyAtLaw - (10899 Byte) 2007-4-25 周三, 09:22 (4127 reads)
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