Reverse Merger or Reverse Takeover

Reverse Takeover is the Acquisition of a Public Company by a Private Company to exit the complex step in going public(Launching of IPO). The result of this acquisition leads to developing up of a new Company with change credentials in accordance to the Private Company.

In this process the Public Company is also referred to as Shell Company. The Private Company Purchases control over Shell Company.

The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing, the shell company issues a substantial majority of its shares and board control to the shareholders of the private company. The private company's share-holders pay to the shell company by contributing assets they have in the private company to the shell company.

Advantages:

1. One of the basic advantage includes the possibility of commanding a higher price for a later offering of the company's securities.
2. Going public through this process allows a company to become publicly held at a lesser cost, and with less stock dilution than through an initial public offering(IPO).
3. There will be no need to influx more capital to go public.
4. Also going through an IPO includes the conditional supervision of market which may be quite volatile at times, even the senior management has no control over market conditions.
5. In addition, during the tenure of putting an IPO together, market conditions can deteriorate, making the completion of an IPO unfavorable.

Drawbacks:

1. As the private company is new, it may be a case when it may be unknown to pending lawsuits and unforseen liabilities.
2. Shells may sometimes come with angry or deceitful shareholders who are anxious to "dump" their stock at the first chance they get.
3. Reverse Takeover only introduces liquidity in the previous private company if it has a bonafide public interest in the company.

The major use of this takeover is the influx of liquidity in the system and the broadening spectrum in Capital Markets.

Examples:

1. ValuJet Airlines was acquired by AirWays Corp. to form AirTran Holdings.
2. The game company Atrai was acquired by JT Storage.
3. US Airways was acquired by America West Airlines.
4. The New York Stock Exchange was acquired by Archipelago Holdings to form NYSE Group.
   

Instruments in Capital Markets

The changes in the regulatory framework of the capital market and fiscal policies have resulted in newer kinds of financial instruments (securities) being introduced in the market.

The variations in all the instruments depend on the tenure, the nature of security, the interest rate, the collateral security offered and the trading features, etc.

Debentures

These are issued by companies and regulated under the SEBI guideline. The rights of investors as debenture holders are governed by the Companies Act, which prohibits the issue of debentures with voting rights.
There are many types of Debentures like Participating debentures, Convertible debentures with options, Third party convertible debentures and many more.


Bonds

Indian Development Financial Institutions (DFIs) in India, like IDBI, ICICI and IFCI have been raising capital for their operations by issuing bonds like Income Bonds, Tax-free bonds, Capital Bonds etc.
In addition to the interest rates and maturity profiles of these instruments, the issuer institutions have been including a put/call option.


Preference Shares

Owners of preference shares enjoy a preferential treatment with regard to corporate actions like dividend. They also have a higher right of repayment in case of winding up of a company.
The various types of Preference Shares are:
• Cumulative and non-cumulative
• Participating
• Cumulative & Redeemable fully convertible to preference shares
• Cumulative & Redeemable fully convertible to equity shares.


Equity Shares

These represent the proportionate ownership of the company. This right is expressed in the form of participation in the profits of the company. Some hybrid securities like equity shares with detachable warrants are also available.

Some other Variants are Derivatives and Hedging.


Dematerialisation of securities occurs when securities issued in physical form are destroyed and an equivalent number of securities are credited into the beneficiary owner's account.
India has adopted dematerialisation route to depository. In a depository system, the investors stand to gain by way of efficient settlements, lower costs and lower risks of theft or forgery, etc....................