Post by oldman on Nov 4, 2013 19:28:15 GMT 7
When I was much younger, I always hoped that the company that I have invested in, will undergo a reverse takeover. The logic is that a bigger company will usually take over the smaller company and the fortunes of the listed company will be dramatically changed for the better.
I was fortunate (and unfortunate) to have gone through this experience a few times and the lesson I have learnt is that many of these reverse takeovers may not be in the interests of the minority shareholders in the longer term. This is especially true for those of us who buy into undervalued companies in the hope that these companies will be correctly valued by the market in the future.
For reverse takeovers to happen, the controlling shareholders must firstly agree to release control of these listed companies. Suffice it is to say that there are lots of benefits for management to have control over a listed company. For them to release control, there must be very strong reasons for them to do so. This is why there is usually a reciprocal arrangement for management to buy over the existing business for a very attractive price.
Those of us who invested earlier because we felt that the company was undervalued, are unlikely to realise that part of the company that was undervalued as the existing company will usually be sold in the process. In its place, will be a totally new company with a business that we are unlikely to be familiar with. Also, for a reverse takeover to happen, the new shareholders injecting the business will also want to have a very good valuation for their business to be injected.
In effect, the existing management with the controlling interests are likely to get a good deal. Also, the shareholders of the injected company are also likely to be given a good deal. In real life, someone has to lose out.
Hence, if you are a shareholder of an existing company that is undergoing a reverse takeover, do scrutinise the details of the business arrangement very carefully as the best time to sell your shares may be during the honeymoon period. Of course, if you like the business of the injected company, then it is a very different matter.
At the end of the day, investors may be better to consider these reversal takeovers the same way they look at IPO companies.
For my thoughts on IPO Stocks, please view: pertama.freeforums.net/thread/208/ipo-stocks
I was fortunate (and unfortunate) to have gone through this experience a few times and the lesson I have learnt is that many of these reverse takeovers may not be in the interests of the minority shareholders in the longer term. This is especially true for those of us who buy into undervalued companies in the hope that these companies will be correctly valued by the market in the future.
For reverse takeovers to happen, the controlling shareholders must firstly agree to release control of these listed companies. Suffice it is to say that there are lots of benefits for management to have control over a listed company. For them to release control, there must be very strong reasons for them to do so. This is why there is usually a reciprocal arrangement for management to buy over the existing business for a very attractive price.
Those of us who invested earlier because we felt that the company was undervalued, are unlikely to realise that part of the company that was undervalued as the existing company will usually be sold in the process. In its place, will be a totally new company with a business that we are unlikely to be familiar with. Also, for a reverse takeover to happen, the new shareholders injecting the business will also want to have a very good valuation for their business to be injected.
In effect, the existing management with the controlling interests are likely to get a good deal. Also, the shareholders of the injected company are also likely to be given a good deal. In real life, someone has to lose out.
Hence, if you are a shareholder of an existing company that is undergoing a reverse takeover, do scrutinise the details of the business arrangement very carefully as the best time to sell your shares may be during the honeymoon period. Of course, if you like the business of the injected company, then it is a very different matter.
At the end of the day, investors may be better to consider these reversal takeovers the same way they look at IPO companies.
For my thoughts on IPO Stocks, please view: pertama.freeforums.net/thread/208/ipo-stocks