This article discusses the concept of shell companies and reverse
takeovers (alternative listing methods).
Briefly a shell company is a company with little or no assets/earnings, for example a failed or struggling company whose business operations have either ceased or have been significantly scaled back.
Such companies provide ideal candidates for reverse takeovers, where a company that wishes to gain a listing on the stock exchange goes through a process whereby it is "taken over" by the shell company, sometimes followed by a restructuring of equity e.g. splits or consolidations, rights issues, share placements etc. It is a low cost method of gaining a listing on the stock exchange and has been utilised numerous times amongst the small stocks of the NZSX.
Some Recent Deals
| Code | Company | Old code and company | When |
| SPY | Smartpay Limited | CUB Cube Capital Limited | 2006 |
| BIO | ICP Biotechnology Limited | APH Australasian Property Holdings Group Limited | 2006 |
| PLS | Plus SMS Holdings Limited | RTX RetailX Limited | 2005 |
| LPL | Life Pharmacy Limited | BDO Beauty Direct and Online Ltd | 2005 |
| CHA | Charlies Group Limited | SPE Spectrum Resources Limited | 2005 |
| NEW | New Image Group Limited | SEL Selector Group Limited | 2004 |
Strategically an investor can take advantage of this by investing in companies that could be used for this, on the assumption that going from no business to a new business will provide impetus for the share price - also speculation that a bargain could be obtained. In the past such a strategy could yield sizeable short term gains e.g. the recent announcement by SVY causing the price to go from about 2 cents to 5 cents, however the time it takes for something to transpire may significantly reduce the real return (HPY).
Into the future there is SVY undergoing the process at the time of writing, and there exists two companies on the NZAX which have listed with the specific purpose of being shell companies for reverse takeovers. Beyond that any company with little or no business serves as a good vehicle for this method, typically you would not invest in these companies for their financial performance.
The back door listing remains a relevant method of listing, and provides benefits to investors who can exploit the opportunities, but it also allows companies a cheap alternative to a quick listing - which means more companies and more quality investments.
By Callum Thomas
