A Private Company’s Assets or Operations are Vended Into a Public Vehicle
In a reverse merger (or reverse takeover) the controlling shareholders of a public vehicle acquire the business operations or assets of a private company. Once the reverse takeover (“RTO”) transaction is complete, the private company is either “vended in” as a subsidiary of the Issuer, in which case all of its financials become reported under the umbrella of the public company, or the assets are purchased.
This is usually accomplished via a Share Exchange Agreement in which the shareholders of the private company receive a majority stake or “controlling interest” in the public company.
New Officers and Directors are Appointed from the Private Company in an RTO
With that change in control, new officers and directors are usually appointed from the management of the private company. The change in control is the reason why reverse mergers are sometimes referred to as a reverse takeover or RTO.
Interestingly, Issuers seeking private company candidates for reverse merger are often called “public shells” even if they have enough assets and operations to avoid classification as a “shell company” under Rule 144.
Super 8-K Type Disclosures Must Be Provided to Investors After a Reverse Merger
Once the reverse merger is complete, the Issuer provides disclosures regarding the private company’s assets and operations using a “Super 8-K” if an SEC reporting company, or an Information and Disclosure Statement if an OTC Markets Pink Sheet using the Alternative Reporting Standard.
The Private Company Now “Trades” on the Public Market
After this disclosure process, the private company’s management is in control of the public vehicle (which may be a former shell) and its stock is now quoted and trades under the same ticker or trading symbol. At this point, it often makes sense for the new management to change the name of the company, and its symbol, in order to emphasize the new business operations to investors.
Famous Companies That Went Public Via Reverse Merger or RTO
Some household names which are reported to have gone public via reverse merger or reverse takeover include Berkshire Hathaway, Blockbuster, Waste Management, Jamba Juice, Turner Broadcasting (which later became CNN), Occidental Petroleum,and Texas Instruments.
Entrepreneurs seeking a public shell for a reverse takeover or Issuers looking for private companies to “vend in” can contact securities lawyer Matt Stout at (410) 429-7076 or firstname.lastname@example.org.