Abstract

http://ssrn.com/abstract=1896004
 


 



What’s in a Shell? Analysing the Gain to Shareholders from Reverse Takeovers


Philip R. Brown


University of Western Australia - Department of Accounting and Finance; University of New South Wales - Australian School of Business; Lancaster University - Department of Accounting and Finance; Financial Research Network (FIRN)

Andrew Ferguson


University of Technology, Sydney - Discipline of Accounting; Financial Research Network (FIRN)

Peter Lam


University of Technology, Sydney - Discipline of Accounting; Financial Research Network (FIRN)

November 30, 2010


Abstract:     
We examine the wealth effect of reverse takeover transactions to shareholders of shell companies. Using three return proxies, including buy-and-hold return, expert-based return and implied premium ratio, we find evidence strongly consistent with a significant gain to shareholders of shell companies participating in such transactions. We also argue that the source of the gain (shell premium) arises from the listing status embedded in the corporate shell of the public firms, which can be utilised by private firms as a vehicle for going public via the backdoor. Multivariate analysis also suggests that, after controlling for other potential factors, the magnitude of the shell premium is positively related to the number of shareholders on the shell company’s share register. In addition, we find that the invocation of the takeovers provisions of the Corporations Act has a positive effect on the gain to public firm shareholders by enhancing their bargaining power when negotiating the deal with the private firm.

Number of Pages in PDF File: 39

Keywords: reverse takeover, reverse merger, backdoor listing, shell premium

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Date posted: July 29, 2011  

Suggested Citation

Brown, Philip R. and Ferguson, Andrew and Lam, Peter, What’s in a Shell? Analysing the Gain to Shareholders from Reverse Takeovers (November 30, 2010). Available at SSRN: http://ssrn.com/abstract=1896004 or http://dx.doi.org/10.2139/ssrn.1896004

Contact Information

Philip R. Brown
University of Western Australia - Department of Accounting and Finance
School of Business, M250
35 Stirling Highway
Crawley WA 6009
Australia
+61 8 6488 2899 (Phone)
+61 8 6488 1047 (Fax)
University of New South Wales - Australian School of Business ( email )
Sydney, NSW 2052
Australia
Lancaster University - Department of Accounting and Finance ( email )
Lancaster LA1 4YX
United Kingdom
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Andrew Ferguson
University of Technology, Sydney - Discipline of Accounting ( email )
P.O. Box 123 Broadway
Sydney, NSW 2007
Australia
02 9514 3565 (Phone)
02 9514 3669 (Fax)
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Peter Lam (Contact Author)
University of Technology, Sydney - Discipline of Accounting ( email )
P.O. Box 123 Broadway
Sydney, NSW 2007
Australia
02 9514 3926 (Phone)
02 9514 3669 (Fax)
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

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