Chinese RTO. BUSI 3001 SBLC Week 3(4) , Spring 2014. Charles Mo & Company March 17, 2014. Reverse Take Over/Reverse Merger
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In a Traditional Merger, the acquirer company retains the parent legal entity/structure, issues stocks or cash to buy out the acquired company. Thus the acquired company may cease to exist or becomes a subsidiary of the Acquirer.
In a Reverse Merger, the acquirer company is in name only, probably is a dormant company, and does not own any assets. but will retain the legal entity after the reverse merger. The acquired company wanting to go public injects itself with its own assets into this dormant company in exchange of stocks.
The dormant company usually is a US listed penny stock or a shell company traded over the counter
Injecting company’s management takes over control of the new RTO company, changes its name, offers additional shares to the public.
Initial capital/expenditure for attorneys, accountants, investment advisors are paid by the injecting company.
Only through a secondary offering or private placement will an RTO company receives funding of capital.
This is a shorter route to get listed in a US Exchange without going through the formal and rigorous process of an IPO.
From 2007 through March 2010, 159 Chinese companies listed in the US through reverse takeovers,. 3 times the number of Chinese IPOs in the US.
China criticized a decision by a U.S. judge that rekindled a longtime accounting dispute between the two countries and hammered the shares of U.S.-traded Chinese companies, even as China said it would negotiate with U.S. regulators over a solution.
Temporarily suspends the China affiliates of the big Four accounting firms from auditing U.S.-listed companies,
cast a cloud over U.S.-traded Chinese companies and Western multinationals with significant operations in China. It could also confound the plans of Chinese companies considering New York listings
The Big Four accounting firms - PricewaterhouseCoopers, Deloitte Touche Tohmatsu, KPMG and Ernst & Young—have said they would appeal
The ruling, if it stands, could leave more than 100 Chinese companies that trade in U.S. markets without an auditor
Baidu Inc.’s American depositary shares fell 6.2% Thursday and 1.35% Friday, while 58.com Inc.’s slid 6.7% Thursday and 6.2% Friday. Qihoo 360 Technology Co.’s shares declined
Secondary offering - The issuance of new stock for public sale from a company that has already made its initial public offering (IPO).IPO = initial Public Offering - An initial public offering (IPO) or stock market launch, is the first sale of stock by a company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises.
Private Placement -(or non-public offering) is a funding round of securities which are sold without an initial public offering, usually to a small number of chosen private investors. In the United States, although these placements are subject to the Securities Act of 1933, the securities offered do not have to be registered with the Securities and Exchange Commission if the issuance of the securities conforms to an exemption from registrations as set forth in the Securities Act of 1933 and SEC rules promulgated thereunder. Most private placements are offered under the Rules known as Regulation D. Private placements may typically consist of stocks, shares of common stock or preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes), bonds, and purchasers are often institutional investors such as banks, insurance companies or pension funds.