When American companies decide to go public, they have to go through an Initial Public Offering (or IPO). This is a lengthy and expensive process that takes months, perhaps longer than a year. Audits, investigations, legal fees and many other factors play into an IPO and not everyone is willing to undergo this. That’s when reverse mergers come into play: A reverse merger is a process where a private company acquires a publicly-traded company to bypass issuing an IPO and becoming a public company faster. There are a lot of companies that have used this method, both successful and not.
The most well-known case of a reverse merger happened on December 6, 2015. The New York Stock Exchange (or NYSE), a business with over 200 years’ worth of history, decided to merge with Archipelago Holdings, an electronic trading company. The sole objective of this merger was for the NYSE to become a public traded company. Four months later, on March 2016, NYSE became the NYSE group and Archipelago Exchange turned into its subsidiary under the name NYSE Arca.
This reverse merger proved so successful than less than a year later the NYSE group completed another merger, this time with Euronext. The result was NYSE Euronext, a transatlantic stock exchange, the first of its kind.
Sometimes, companies become private after trading publicly for some time. They might even issue an IPO at first go back to private ownership sometime later. In financial turbulent times, this helps to restructure the company and plan a new strategy. This is what happened to Burger King. It first when public in 2006, after filling an IPO earlier that year. In May 2006, Burger King began trading on NYSE. The initial stock sale was the largest of a restaurant-based company ever. After the 2008 financial crisis, Burger King experienced financial decline while its main competitor, McDonald's grew. 3G Capital turned Burger King into a private company after a quick stock acquisition. An immediate restructuring ensued, which laid the ground for 3G Capital to merge Burger King with Justice Holdings, a British firm, turning both into Burger King Worldwide, making the well-known fast food giant go public again. This move by 3G Capital proved worthy of doing and brought stability to the once shaky chain of restaurants.
Burger King to Go Public Again
One of the most important financial investors of all time used a reverse merger to take his main company public. In the early 60s, Buffet started buying Berkshire Hathaway stock, a publicly-traded textile company, from its owner. Eventually, Buffet became the majority owner and fired Berkshire’s founder and named a new president. In 1985, Berkshire Hathaway was no longer in the textile business, as Buffet merged it with his other companies, like GEICO, to take them to the stock exchange. Berkshire Hathaway is now a multinational conglomerate with business all over the world.
Another famous reverse merger that led to a well-known result was started in the 1960s, by Ted Turner. He became the president of Turner Advertising Company in 1961. After a reverse merger with Rice Broadcasting in 1970, Turner Communications Corporations was born. This financial maneuver proved a success and boosted Turner’s stock overnight. With that as a solid floor to start marching towards his dreams, Ted Turner founded CNN, TBS, Cartoon Network, amongst others, and became one of the most important men in the broadcasting business.
But not all merger results are successful for various reasons. And some are destined to fail. After the 2007-2008 crisis, many Chinese companies started to appear in America’s stock markets after merging with weakened companies that couldn’t survive the financial storm. An infamous example is the ShengdaTech case, which became publicly traded in 2007 after American company Zeolite Exploration Company merged with a Chinese owned, British Virgin Islands based company named Faith Bloom. ShengdaTech declared bankruptcy in 2011 after a plethora of legal issues such as falsified report sales, falsified tax records, amongst many others. Cases like this sparked the attention on Chinese mergers and an investigation ensued. With over 400 Chinese led mergers done in the last decade, more than 100 proved fraudulent or, at least, questionable.