Reverse Merger

REVERSE MERGER

Presented by: KUNAL 16 TEJAS

AGENDA • Overview on reverse mergers • Key factors for a successful reverse merger • Pros & Cons • Case – ICICI & ICICI Bank

Part 1 OVERVIEW ON REVERSE MERGERS

What is Reverse Merger? • Reverse merger is an alternative method for small and medium size private companies to become public without going through the long and complicated process of traditional Initial Public Offering (IPO)

(… Contd) What is Reverse Merger? • In a reverse merger, a private company acquires a public entity by owning the majority shares of the public entity (usually 90% or more)

(… Contd) What is Reverse Merger? • At the close of merger, the private company takes on corporate structure of the public entity with its own company name, assets, officers, directors, management team and becomes public

PART 2

Key Factor For Successful Reverse Merger

Step One  Finding a suitable shell and making sure it is “clean”  A public shell could be either a public traded reporting company or a non-trading public reporting company (A Blank Check Company)  A public shell usually has no operation or business activities and has no remaining employees and management team  Shells that have no significant assets can be purchased

Step Two  Seeking experienced law firm  Seeking reputable auditing firm  The investors of private company buy an overwhelming majority of the shell shares for a nominal amount and/or the shell shareholders vote to authorize the issuance of a new large and highly diluted block of shares

Step Three  The large block of shell company shares that is now controlled by the private company investors are swapped for the private company, thereby acquiring it. The shell company now owns the assets and ongoing business of the private company, including its name, officers, directors and management team.

The Process

Reverse Triangular Merger KEY Highlights: The acquirer drops down a 100% subsidiary The acquirer’s subsidiary merges with the Target The acquirer issues shares to the shareholders in the target Consequently, the acquirer holds 100% in the target

PART 3

PROS & CONS

Advantages Of Being Public Easier Access to Capital Greater Liquidity Growth through acquisitions & strategic alliances Using Stock Options to retain talent Increased shareholder confidence

Advantages: Reverse Merger v/s IPO Lower Cost Speedier Process Not dependent on IPO market for success Less dilution Underwriters unnecessary

Disadvantages Of Being A Public Company Emphasis on short term results Public Disclosure of Financial Results Increases the cost of doing business Public Companies attract lawsuit

Criticism About Reverse Merger Less funding Hard to obtain market support Insider Trading – “Bad Guy” tactics

PART 4 - CASE STUDY

ICICI LTD & ICICI BANK