Helping You Build Wealth With Honest Research
Since 1996. Read On...

MEMBER'S LOGIN

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Revealed
India's Third Giant Leap

This Could be One of the Biggest Opportunities for Investors




Important: We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
By submitting your email address, you also sign up for Profit Hunter, a daily newsletter from Equitymaster
covering exciting investing ideas and opportunities in India.

AD

Shortcut to Dalal Street
Mon, 30 Apr Pre-Open

Listing a company on the bourses is a cumbersome process. Host of guidelines/regulations, past track record and unfavourable primary market conditions can act as a hindrance. However, promoters of many unlisted companies have found a way out to get themselves listed by evading the current clumsy process. And that is by acquiring listed shell companies. For the uninitiated, a shell company is an organisation which does not have any business or assets in place. Acquiring such companies gives a ready platform to promoters of the unlisted entity, to subsequently merge their business with the shell company. This gives them a backdoor entry to Dalal Street.

Reverse merger transactions (merging the listed company with the unlisted one) are especially favourable during weak market conditions. This is because during such times listed shell companies generally trade at a discount. And thus, the promoter of the unlisted entity does not have to pay a huge premium to the current market price. In fact, there have been a quite a few shell acquisitions in the recent past due to weak market conditions.

But one must remember that such acquisitions can also backfire as shell companies are fraught with accounting irregularities and weak corporate governance practices. Take the case of US shell companies for example. Off late, many Chinese companies had gotten themselves listed in the US through reverse merger transactions. However, as accounting scandals in these shell companies started coming on to the fore (resulting from intense scrutiny), many traders indulged in short selling in order to make a quick buck. This not only resulted in huge price erosion but few of them also got delisted in the said process.

Another issue with shell companies is that since they having no business of their own, the intrinsic value and the acquisition premium paid, is always under question. There is no way an unlisted promoter can come to a fair value of a non-existent business. Also, the acquisition premium he is willing to pay is dependent on his willingness/need to get himself listed. Thus, we believe that gaining a backdoor entry through shell acquisition is a dangerous way to go public. If the business has strong fundamentals, the traditional Initial Public Offer (IPO) route is much safer.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives

Read the latest Market Commentary


Equitymaster requests your view! Post a comment on "Shortcut to Dalal Street". Click here!

  
ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
TRENDING TOPICS
FREE NEWSLETTERS
EQUITYMASTER SUPPORTS
  • HelpYourNGO
  • You Tube
  • Linkedin
  • Twitter
  • Telegram
  • Google Play

Copyright © Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited).

Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap

Phone +91-9136015013

Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407

Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com

LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.