Abstract
This paper analyzes 47 reverse takeovers (RTOs), in which privately held firms acquire public firms to obtain listing status in Singapore and Thailand between 2007 and 2015. Unlike U.S. RTOs in prior studies, these transactions cannot be regarded as short-cuts to bypass listing rules since merged firms must meet the same minimum listing requirement as firms listing with IPOs. Rather, private firms treat RTOs as an opportunity to become public firms without immediate dilution by acquiring smaller firms at bargain prices. By examining shareholder circulars and analysis of transaction characteristics, we find that co-parties tend to cite growth from business diversification as their motivation for RTOs. Distressed public firms more frequently emphasize the motivation to reorganize and revive by merging with stronger private firms. Analysis of return and financial accounting performance shows that the merged firms experience improved growth and generate positive wealth impact; thus, offering opportunity for incumbent shareholders of public firms to recover some of their investment value.
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Notes
This is a feature unlike RTOs in the U.S. where Gleason et al. (2005) categorized private firms going public through RTOs as smaller than the public firms they merge with.
Singapore and Thai firms can seek a waiver from the SEC from making a mandatory takeover offer if the transaction is achieved through a rights issue procedure.
These are a listed issuer's acquisition (or series of acquisitions) of assets where any percentage ratio is 100% or above in terms of net tangible assets, net profit, total consideration, equity value, or proven and probable reserves. Details are available from SGX rulebook Chapter 10, Part VIII section 1015 and SET’s listing rule 11-00.
A waiver for relisting application may be requested if the RTO involves same industry co-parties, maintains the same core business of the listed firm, and requires no change in board membership.
The Kuala Lumpur Stock Exchange (KLSE); like SGX and SET, requires firms listing through RTOs to comply to the same listing standards as IPOs.
See Vermeulen (2014) and Charltons Solicitors, www.charltonslaw.com.
See http://infopub.sgx.com and https://www.set.or.th/set for Singapore and Thai public firms’ important announcements and circulars. MOU and EGM dates are available on these sites. If an MOU date is unavailable we use the date when the first circular is publicly available from the firm’s website or news sources.
This highlights the aspect of RTOs which is less sensitive to market conditions unlike IPOs shown in Leow and Lau (2018) in their study of Malaysian IPO performance between 2006 and 2011.
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Acknowledgements
The author wishes to thank the National Research Council, and Thailand Research Fund for grant support. The author appreciates comments from Anchada Charoenrook, Manapol Ekkayokkaya, Pisit Jeungpraditphan, participants of the Securities Exchange Commission and CFA Institute Working Paper Forum, and PIER Annual Research workshop. Sippapon Ithiprachayaboon, Prasit Sutthikamolsakul, and Nina Taphunwong provided excellent research assistance (Grant Number RDG 5910010).
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Pavabutr, P. White Knights or Machiavellians? Understanding the motivation for reverse takeovers in Singapore and Thailand. Rev Quant Finan Acc 55, 983–1001 (2020). https://doi.org/10.1007/s11156-019-00865-w
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DOI: https://doi.org/10.1007/s11156-019-00865-w