GHS Helps Itself by Avoiding an IPO

question 96

Essay

GHS Helps Itself by Avoiding an IPO

In 1999, GHS, Inc., a little known supplier of medical devices, engineered a reverse merger to avoid the time-consuming, disclosure-intensive, and costly process of an initial public offering to launch its new internet-based self-help website. GHS spun off its medical operations as a separate company to its shareholders. The remaining shell is being used to launch a ‘‘self-help’’ Website, with self-help guru Anthony Robbins as its CEO. The shell corporation will be financed by $3 million it had on hand as GHS and will receive another $15 million from a private placement. With the inclusion of Anthony Robbins as the first among many brand names in the self-help industry that it hopes to feature on its site, its stock soared from $.75 per share to more than $12 between May and August 1999. Robbins, who did not invest anything in the venture, has stock in the new company valued at $276 million. His contribution to the company is the exclusive online rights to his name, which it will use to develop Internet self-help seminars, chat rooms, and e-commerce sites.
-What are the advantages of employing a reverse merger strategy in this instance?

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Definitions:

Underdeveloped Countries

Nations characterized by low levels of economic productivity, income, and technological sophistication, often accompanied by poor standards of living.

World Wars

Major global conflicts involving many of the world's nations; notably, the two occurrences in the 20th century (1914-1918 and 1939-1945).

Corporate Greed

The pursuit of excessive profit by businesses at the expense of ethical standards, workers' rights, and the public good.

Globalization

The process of increased interconnectedness and interdependence of the world's markets and businesses.