Continued from page 1
The Reverse Merger's CFO knows that public company has a hundred times better odds of raising risk capital from accredited investors. The CFO can offer potential investors liquidity, after one year, and leverage by discounting price of Private Placement shares. What CFO needs is a public company with strong and sustainable share price to attract investment interest. And therein lies problem, "poison pill" ignored by most CFOs.
It costs money to find buyers for any stock. Public companies are responsible for finding buyers of their stock for as long as company is public. In our example above, OTCBB Company with a float of 500,000 will cost public company about $400,000 to maintain a $3/share price. The poison pill is fact that shell company's insiders will sell their shares into market at $3/share. The shell company insiders make 13.5 million dollars from sale of their shell.
This will create a float of 5 million shares and Reverse Merger Company must pay an annual four million-dollar investor relation's bill that they rarely can generate from corporate income. The result is death of another fledgling company. There's a loss of investment capital. And, community loses jobs. The only winners are shell company insiders and Dr. Kevorkians from Texas to New York, who supply reverse merger suicide service.
CFOs have more than two ways to take their private company public. They should look at possibility of a corporate death pill in any alternative they consider. A little research is ounce of prevention that avoids a meeting with Dr. Death.
To contact author: Visit Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]