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TOPIC: News Stories on Shell Stocks and Reverse Mergers

News Stories on Shell Stocks and Reverse Mergers 12 years 3 weeks ago #1132

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Shells fill in the blanks for deals

By James P. Miller
Tribune staff reporter
Published January 21, 2007

Great Lakes Dredge & Dock Corp. went public not through a conventional initial public offering but by the increasingly popular alternative of combining with a "blank check" company.

Also known as special purpose acquisition companies, or SPACs, blank-check concerns are essentially publicly traded shells. It is an ownership format that requires investors to buy into an acquisition vehicle, rather than a business they can see or measure, and essentially bet on management's ability to find a good deal in the future.

As the Great Lakes deal shows, a SPAC investment can yield very solid profit.

Historically, newly formed companies have been owned by their founders and by private venture-capital investors that provide early-stage seed money. After the company matures, it raises additional capital by selling shares to the public.

That's the standard model. SPACs essentially reverse the process: They sell shares to the public first, then later become a functional company that actually produces goods or services.

Confused? Consider what happened with Great Lakes.

First, a New York private-equity firm created a company, naming it Aldabra Acquisition Corp. Aldabra was essentially a shell, without any operations or meaningful capital. Early in 2005, however, it went public through an initial offering.

Investors knew what they were getting into. "We are a blank-check company," Aldabra said in its IPO documents, "formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination."

Aldabra sold 9.2 million "units" to investors at $6 apiece, raising total proceeds of $55.2 million. Each unit provided the buyer with one share of common stock and two warrants to buy shares at a future date.

In a conventional IPO, companies generally use proceeds from the offering to pay down debt or to expand by buying new equipment and hiring more workers. But Aldabra put almost all of the money into a trust account.

After the IPO, Aldabra shares began trading publicly on the bulletin board over-the-counter market, also known as the "pink sheets," a kind of minor-league equities market where shares of the smallest companies trade.

Searching for a partner

According to regulatory filings related to the merger, Aldabra executives looked at more than 150 potential acquisition candidates and conducted detailed due diligence reviews of 35 of those businesses. It liked two prospects, but neither proposed combination panned out.

Then in April, an Aldabra official contacted Madison Dearborn Partners to see whether the Chicago private-equity giant had any business in its portfolio that it would like to merge with Aldabra.

Madison Dearborn did, and in June the companies announced that the Aldabra shell would merge with Madison's Great Lakes subsidiary.

The combination closed Dec. 27. Great Lakes became a publicly traded company, without ever going through an IPO. As a much bigger company, its shares trade on the Nasdaq stock market instead of the pink sheets.

Madison Dearborn holds 67 percent of the post-merger Great Lakes, and Aldabra investors 28 percent. Great Lakes management, which had owned a 15 percent stake in the Madison Dearborn subsidiary, own 5 percent of the new combination.

Madison Dearborn contributed a company that generates more than $400 million in annual revenue and is modestly profitable on an operating basis. Aldabra brought to the deal roughly $50 million it raised in its 2005 IPO and its status as a public company. That is valuable: Madison, which controls Great Lakes' board, now is free to sell its more than 26 million Great Lakes shares, and Great Lakes can use stock instead of cash to make future acquisitions.

Profit for investors

With Great Lakes shares currently trading at $6.87, Aldabra investors have more than recovered the $6 a share at which they bought in. They can sell the shares or hold them in hopes that Great Lakes' stock rises in coming years.

But they also have an additional profit source, one that helps explain the appeal of the SPAC format to hedge-fund investors that don't mind a risk.

The two warrants investors received with their $6-a-share buy-in were worthless until Aldabra consummated a deal. But those warrants, which allow holders to buy Great Lakes shares at $5 apiece, now have been activated and trade publicly on Nasdaq.

The warrants are trading at $1.76, or roughly the price of the stock minus the $5 exercise cost, but could become much more valuable if Great Lakes shares climb in the future.

As of Friday Aldabra investors who put in $6 could sell their shares and warrants for $10.39. That's a 73 percent return over the span of about 18 months.

Such outsize returns aren't a sure thing, of course. If an SPAC fails to find a good merger candidate over a specified period of time, it is obliged by law to liquidate and return the money to investors in its IPO.

But deals are getting done. Acquicor Technology Inc., a California blank-check company, raised $172 million in its IPO and is nearing completion of a merger with closely held Jazz Semiconductor Inc. And investors in the SPAC that acquired Jamba Juice producer Jamba Inc. have seen the value of their investment rise sharply.
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News Stories on Shell Stocks and Reverse Mergers 12 years 1 month ago #1115

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News Stories on Shell Stocks and Reverse Mergers 12 years 2 months ago #1095

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[Reverse Mergers Shrug Off Summer Hiatus to Outpace Traditional IPOs]
Reverse Mergers Shrug Off Summer Hiatus to Outpace Traditional IPOs

Aggregate Market Cap Generated by Reverse Mergers Doubled From Last Quarter

PETALUMA, CA -- (MARKET WIRE) -- November 16, 2006 -- More private companies are becoming public through reverse mergers with shells, yet the third quarter saw a 4.3% decrease in completions from the previous quarter and a 12% drop from last year, according to The Reverse Merger Report, a quarterly publication by DealFlow Media that tracks the market for alternative public offerings.

During the third quarter, 44 companies completed reverse mergers with public shells, a drop from the 50 deals completed in last year's third quarter. However, despite this decline, reverse mergers generated the highest aggregate market cap value of any quarter on record, doubling in size. Reverse mergers generated a total market cap value of $3.4 billion, a 103% increase from last quarter's $1.67 billion and 160% larger than the $1.3 billion market cap from last year's third quarter.

The number of reverse mergers continues to eclipse IPOs. There have been 139 reverse mergers compared to 120 IPOs through the end of the quarter, and there were 13 more reverse mergers than IPOs in the third quarter alone. IPOs are also sharply down from the second quarter.

An increase in non-U.S.-based companies continued to use the reverse merger as a means of accessing the U.S. equity markets in the third quarter. Roughly 34% of reverse mergers this quarter involved a non-U.S.-based company. Chinese companies dominated non-U.S. reverse mergers, comprising 80% of the deals.

There were only five specified purpose acquisition corporations (SPACs) public offerings finalized in the third quarter, compared to 13 IPOs in the second quarter. New SPAC offerings raised $1.68 billion in the third quarter, 22% less than the previous quarter, but the average amount raised at IPO during the quarter more than doubled.

Though completions were down, there were 17 new IPO filings by SPACs, making it the fourth most active quarter for new filings since 2003. SPAC IPO filings only decreased slightly from last quarter's 18 filings but plummeted 41% from the year earlier quarter, which had a record 31 filings.
Meghan Leerskov
Email Contact

SOURCE: DealFlow Media

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News Stories on Shell Stocks and Reverse Mergers 12 years 2 months ago #1094

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[News Stories on Shell Stocks and Reverse Mergers]
Post news stories and links that discuss Shell Stocks and Reverse Mergers in general.

DO NOT post stories on individual Shell Stocks. Those should be published under one of the following threads:

Shell Stocks on the Profile List
List/Discuss Shell Stocks on the Profile List.

Shell Stocks not listed on the Profile List - SEC Reporting.
List/Discuss Shell Stocks not included on the Profile List that are SEC reporting companies.

Shell Stocks not listed on the Profile List - NON Reporting "Pinks".
List/Discuss Shell Stocks not included on the Profile List that are non-SEC reporting pink sheet companies.
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