OK, those are valid suggestions. However, I don't see how management can surrender shares -- that would create unpleasant tax consequences for them. Seems to me that would be basically a gift on which there would be gift tax, but I'm an M&A lawyer and not a tax lawyer so I won't swear to that. Plus, what's the value of all their shares at a penny or two? Is it really enough to attract a reverse merger candidate that has any material value?
Cash or a buyback presupposes that the company has cash. I strongly doubt that they do.
I've worked on reverse triangular mergers into shells myself and my sense is that if the reverse split or increase in the authorized is announced at the same time that the letter of intent is signed, the marketplace should understand and be happy. Those words can be scary to the uninformed, but you're talking about a two-cent stock here (that's pretty scary already). OF COURSE there has to be dilution of the public entity when the new company is vended in -- that's a given. Announcing a good deal would more than counteract the negatives.