There are a number of paths a company can take to becoming publicly trading including: Intial Public Offering (IPO), Secondary Ofering (DPO), Reverse Merger (RTO) and Cross-listing. With each path comes a set of rules and procedures that a company must follow. Below is a description of some of the more common ways a private company becomes listed.

REVERSE TAKE-OVER (RTO)
An RTO or Reverse Merger involves a private operating company merging into a non-operating or shell company that is already publicly listed. In the merger, the operating company shareholders are issued shares of the shell in exchange for the operating company shares. Post-merger, the former operating company shareholders own 80-90% of the shell (which now contains the assets and liabilities of the operating company) with the remaining 10-20% owned by the existing shell company shareholders. The shell company’s name is then changed to the name of the operating company. While many believe this as a fast track to getting listed, the SEC is starting to make the registration process for this type of transaction increasingly complicated, adding to the time it takes to complete the transaction. Due to recent SEC changes to the rules governing reverse mergers, audited financials, corporate information, and corporate activities including shareholder relations must still be disclosed. A Reverse Merger can take less time then traditional methods of becoming publicly listed, but along with having to leave a percentage of shares with the existing shell share holders, it could open the door to unforeseen liabilities, unpaid bills, or legal claims. To avoid that catastrophe, the importance of thorough due diligence on the public shell must be stressed.

CROSS-LISTING
Dual-listing, cross-listing and inter-listing are all terms used to describe securities which are listed on more than one exchange. Many public companies listed outside the United States choose to cross-list their securities on a US national market.

Cross-listing can bring in addition capital by:

o Bringing foreign stocks closer to investors
o Expanding the potential investor base.
o Greater access to foreign money markets
o Allowing easier structural transactions; M&A
o Making it easier to sell debt.
o Improving liquidity

Also, when a foreign company borrows the corporate governance guidelines from a country with high governance standards such as the United States, it acts to protect current and potential investors. Managers and directors are legally bound by fiduciary obligations, improving minority shareholder protection and rights. This increases investor confidence and many fund managers and investors require such guidelines when making investment decisions.

More Haynes News >>