SEC Rule Change Will Impact Mergers With “Shell Companies”
July 7, 2005 - Last week, in a long anticipated move, the U.S. Securities and Exchange Commission (SEC) passed its rule change which impacts privately-held companies merging or being acquired by shell companies.
he proposed rule change was initially published by the SEC in August 2004, and many Wall Street insiders had wondered whether the rule change would ever be enacted. The rule change will become effective on November 7, 2005.
The rule change requires a reporting shell company to file a Form 8K within four days of the closing of the merger or share exchange agreement with the private company. This Form 8K must include audited financial statements and “full prospectus equivalent disclosure” including management, risk factors, management, and the private company’s business.
Filing the Form 8K within the four day period will be a virtual impossibility for most privately-held companies merging with a shell company, primarily due to the audit requirement. The audit not only will have to include the financial results of the publicly-held shell company, but also the financial results of the private company’s operations, consolidated with the publicly-held shell company.
In recent months many shell companies have sold for $350,000 to $650,000. Many Wall Street insiders believe that this SEC rule change will greatly decrease the value of shells, if not make shell companies essentially worthless.
In commenting on the rule change ......
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