PANDA ETHANOL GOES PUBLIC IN A SHELL CORPORATION

Panda Ethanol Goes Public in a Shell Corporation



Panda Ethanol Goes Public in a Shell Corporation

Thesis Statement

What applications of reverse stock split and reverse merger apply on the case of Panda Ethanol?

Purpose of Paper

The purpose of the paper is to analyze and identify the pros and cons of reverse merger, the reasons of reverse stock split, and to analyze the case “Panda Ethanol Goes Public in a Shell Corporation” and lessons learned from the case.

Overview of Paper

This paper analyzes the case of Panda Ethanol in which Panda Ethanol and Cirracor exercised a reverse merger due to decreasing value of stock of Cirracor.

Pros and Cons of a Reverse Merger (RM)

In the context of a reverse merger, a private company buys a public company and merged its operations in the public company to become a public company and have its stock trade on an exchange. A reverse merger is a cheaper alternative to an initial public offering (IPO) and is favored by many domestic and foreign small, profitable(DePamphilis, 2011).

IPO Fees and Limits

An IPO is a costly process that can be cumbersome, if not impossible, for many small businesses, including foreigners. At first, not all small businesses can afford the cost of going through an IPO. Pit the market is controlled by investment banks that select companies to make public that the actions they can easily sell to investors (DePamphilis, 2011). If they feel that there is little demand for a particular stock, investment banks will not be interested, the only option left to a small business "unpopular" can a reverse merger.

Shell

In the context of a reverse merger, a private company enters into a public company that exists only on paper, called a "shell". Shell has not operations or property, and its only value lies in its stock, which is publicly traded (DePamphilis, 2011). The stock is likely to be priced at only cents per share, because its only value is that it exists and can be exchanged.

Process

Private company buys a shell and merges its operations in the public company. The merger is called reverse because in merger traditional assets of the acquired business is merged into those of the acquirer, not the reverse.

Benefits

Shareholders of the private company, receive most of the stocks of shell, which is listed. Shell shareholders receive cash for their shares and get to keep some of their actions. The company brings together the deal-usually a securities firm, also obtained shares in the new entity. After the merger, the shares traded value rises because it is now supported by gains and real estate. Shareholders of the acquirer and shareholders of the shell material get to sell their shares on the open market on their holdings. The new entity later can raise funds by selling additional shares (DePamphilis, 2011).

Why Would a Company Reverse Split (RS) a Stock?

Reverse Stock Split

A reverse stock split is the merging of shares; it is the opposite of a stock split (one stock ...