Shortcut to the U.S. Markets through Reverse Mergers

Review of Business & Finance Case Studies, v. 3 (1) p. 43-52, 2012

10 Pages Posted: 29 Jan 2013

See all articles by Congsheng Wu

Congsheng Wu

University of Bridgeport - School of Business

Date Written: 2012

Abstract

A reverse merger takes place when a public company, commonly known as a “shell”, acquires a private operating company through a share exchange transaction. The public shell typically has no business operations, but is valuable because of its public trading status. Post-merger, the operating company’s owners take control of the newly formed public company. Reverse mergers have long been used in the U.S. as an alternative to achieve public trading status. Conventionally, foreign companies wishing to cross list their shares in the United States have followed the old-fashioned initial public offering (IPO) process. Their shares, typically in the form of American Depositary Receipts (ADRs), are registered with the SEC and are listed on a major stock exchange. In recent years, however, an increasing number of Chinese companies have gained U.S. market listing through reverse mergers. This article provides a detailed case study of an actual reverse merger. The case is appropriate for upper-level undergraduate or graduate finance courses such as corporate finance. Students should have the basic knowledge about the financial markets and corporate finance. Students can work individually or in teams on this project, which requires around 5-8 hours outside of class to complete. Classroom presentations and discussions should be arranged in a regular, 2-hour class.

Keywords: Reverse Mergers, Chinese Companies, Public Shell, Case Study

JEL Classification: G34

Suggested Citation

Wu, Congsheng, Shortcut to the U.S. Markets through Reverse Mergers (2012). Review of Business & Finance Case Studies, v. 3 (1) p. 43-52, 2012. Available at SSRN: https://ssrn.com/abstract=2094694

Congsheng Wu (Contact Author)

University of Bridgeport - School of Business ( email )

126 Park Avenue
Bridgeport, CT 06601
United States

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