Shell firms are traded either on the OTC Bulletin Board (OTCBB) or through Pink Sheets. Since then, all companies reporting to the SEC must indicate whether they declare themselves a shell company according to Rule 12b-2. In June 2005, the SEC defined any company with “no or nominal operations, and with no or nominal assets or assets consisting solely of cash and cash equivalents” as a shell company. In the last few years, reverse mergers (RMs) have become an important alternative to traditional IPOs, and shell companies constitute an integral part of RM transactions. We show that shell company returns are much greater at the consummation of a merger than those of a similar entity that in dollar terms is more popular among investors - Special Purpose Acquisition Companies (SPACs). We argue that this exceptional return is compensation to investors for shell stock illiquidity and the uncertainty of finding a reverse merger suitor. When a takeover agreement is consummated, shell company three-month abnormal returns are 48.1%. These companies have no systematic risk, operations, or assets, and their share price tends to decline over time. The purpose of most of these shell firms is to find a suitor for a reverse merger agreement. We study 585 trading shell companies over the period 2006–2008. In each of the last eight years reverse mergers have outnumbered traditional IPOs as a mechanism for going public, and reporting shell companies are providing fuel for much of this growth. Private firms that go public via reverse merger are often motivated by the need to quickly secure financing through privately placed stock (PIPEs) and the desire to make acquisitions using stock as payment. This can be done quickly, without fundraising, road show, underwriter, substantial ownership dilution, or great expense. ![]() Contango projected that the new E&P would have unlevered free cash flow of $375-400 million in 2022.A reverse merger allows a private company to assume the current reporting status of another company that is public. When the merger was announced in June, the equity market capitalization was valued at about $4.8 billion, with an enterprise value of about $5.7 billion. The company plans to prioritize “cash flow through financial discipline and risk management.” This would also include acquiring and developing a portfolio of low-risk assets.Ĭrescent is to be managed by global investment firm KKR & Co. “We believe the current market environment provides opportunity to significantly grow Crescent and create meaningful shareholder value by executing our differentiated strategy focused on cash flow, risk management and investment returns,” said Crescent CEO David Rockecharlie. The Independence portfolio spanned the Eagle Ford Shale, Rockies, Permian Basin and Midcontinent, while Contango had assets in the Midcontinent, Permian, Rockies and in the Gulf of Mexico. ![]() ![]() Houston-based Crescent, whose assets are across the Lower 48, had pro forma production of about 119,000 boe/d during 3Q2021.
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