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Shortcut to Dalal Street
Mon, 30 Apr Pre-Open

Listing a company on the bourses is a cumbersome process. Host of guidelines/regulations, past track record and unfavourable primary market conditions can act as a hindrance. However, promoters of many unlisted companies have found a way out to get themselves listed by evading the current clumsy process. And that is by acquiring listed shell companies. For the uninitiated, a shell company is an organisation which does not have any business or assets in place. Acquiring such companies gives a ready platform to promoters of the unlisted entity, to subsequently merge their business with the shell company. This gives them a backdoor entry to Dalal Street.

Reverse merger transactions (merging the listed company with the unlisted one) are especially favourable during weak market conditions. This is because during such times listed shell companies generally trade at a discount. And thus, the promoter of the unlisted entity does not have to pay a huge premium to the current market price. In fact, there have been a quite a few shell acquisitions in the recent past due to weak market conditions.

But one must remember that such acquisitions can also backfire as shell companies are fraught with accounting irregularities and weak corporate governance practices. Take the case of US shell companies for example. Off late, many Chinese companies had gotten themselves listed in the US through reverse merger transactions. However, as accounting scandals in these shell companies started coming on to the fore (resulting from intense scrutiny), many traders indulged in short selling in order to make a quick buck. This not only resulted in huge price erosion but few of them also got delisted in the said process.

Another issue with shell companies is that since they having no business of their own, the intrinsic value and the acquisition premium paid, is always under question. There is no way an unlisted promoter can come to a fair value of a non-existent business. Also, the acquisition premium he is willing to pay is dependent on his willingness/need to get himself listed. Thus, we believe that gaining a backdoor entry through shell acquisition is a dangerous way to go public. If the business has strong fundamentals, the traditional Initial Public Offer (IPO) route is much safer.

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Stock Market Updates

Sensex Trades Marginally Lower, Dow Futures Up by 174 Points (Today's Market)

May 14, 2021 12:30 pm

BSE Sensex is trading down by 29 points, while the NSE Nifty is trading down by 39 points.

Sensex Opens Flat; Asian Paints Rallies 7% Post Q4 Results (Today's Market)

May 14, 2021 09:30 am

Indian share markets open flat. The BSE Sensex opened down by 33 points, while the Nifty is trading lower by 14 points.

ADANI TOTAL GAS Share Price Down by 5%; BSE 500 Index Down 0.1% (Today's Market)

May 14, 2021 09:34 AM

ADANI TOTAL GAS share price is trading down by 5% and its current market price is Rs 1,330. The BSE 500 is down by 0.1%. The top gainers in the BSE 500 Index are ASIAN PAINTS (up 6.7%) and BANK OF INDIA (up 5.7%). The top losers are ADANI TOTAL GAS (down 5.2%) and VINATI ORGANICS (down 7.1%).

JINDAL STEEL & POWER Share Price Down by 5%; BSE METAL Index Down 2.4% (Today's Market)

May 14, 2021 09:32 AM

JINDAL STEEL & POWER share price is trading down by 5% and its current market price is Rs 466. The BSE METAL is down by 2.4%. The top losers are JINDAL STEEL & POWER (down 5.3%) and NMDC (down 5.3%).

BANK OF INDIA Share Price Up by 5%; BSE BANKEX Index Up 0.3% (Today's Market)

May 14, 2021 09:28 AM

BANK OF INDIA share price is trading up by 5% and its current market price is Rs 77. The BSE BANKEX is up by 0.3%. The top gainers in the BSE BANKEX Index is BANK OF INDIA (up 5.2%). The top losers is HDFC BANK (down 0.2%).

GRINDWELL NORTON Share Price Up by 8%; BSE CAPITAL GOODS Index Up 0.4% (Today's Market)

May 14, 2021 09:26 AM

GRINDWELL NORTON share price is trading up by 8% and its current market price is Rs 1,259. The BSE CAPITAL GOODS is up by 0.4%. The top gainers in the BSE CAPITAL GOODS Index is GRINDWELL NORTON (up 7.7%). The top losers are L&T (down 0.3%) and V GUARD INDUSTRIES (down 0.4%).

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