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What happens with shares in reverse merger?


Mergers requires at least two companies consolidating. After board of directors approve combination they seek shareholders approval if merger has material impact on either company. Result is that acquired company becomes the part of acquiring company. Stockholders may receive stock, cash or combination of the both. In stock for stock agreement between companies they agree to exchange shares on set ratio where post merger price will depend on the market condition and assessment of new companies chances for success. In cash for stock deal acquiring company agrees to pay certain amount for every share of the target company and in response price of the stock will usually rise while the price of acquiring company slightly falls.

On the other hand reverse merger is more type of acquisition because one private company buys a public shells company in order to circumvent costly, lengthy and complicated process of initial private offering (IPO). After the exchange of shares private company becomes publicly traded with majority of control shares. It is not necessary that companies be in the same type of business, often they are in very different businesses. Public company that previously had operations but due to unfavorable market condition is now without active business or assets is considered shell company suitable as a vehicle for doing reverse merger. It stock continue to trade , usually at a specific price supported by market makers or if it trades on exchange it is supported to meet minimum requirements in order to maintain value of the shell. Foreign companies who wish to trade in the United States use reveres merger as a means to access US stockmarket.

For original shareholders of public company reverse merger can be a great way to recover their investment. Voting against could be a mistake because stock of a dormant shell company without active operations is essentially worthless. Shareholders will receive new shares in exchange for the original shares although it is often is smaller number than in original holding. Company agrees to pay certain sum for ownership of public company and that number is divided among existing shareholders. Some companies may utilize reverse split and reduce the number of shares further, followed by authorization and issuance of new shares which dilutes the existing ownership but that is not the case with every company. Blocking reverse merger carries the risk of not being able to recover investment. Reverse merger has many other advantages that makes him a good way to take company public, fewer regulatory requirements, providing liquid market for company's shares, increased valuation of the investment are just some of them. Mina Mar Group offers a vast inventory of clean public shells and full service package to guide every step of the way in reverse merger process.
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