Ted Turner took his billboard company public in 1970 when he merged into publicly traded, failed TV company Rice Broadcasting, changed the name of the new public entity to Turner Broadcasting, and took over the company.
Or Muriel Siebert, who took over the public furniture company, J. Michaels, in 1996, renamed it Siebert Financial (SIEB:Nasdaq), and the public company is now a financial services company. Other companies that have used the reverse merger vehicle to go public and then went on to fame and fortune include Waste Management (WMI:NYSE – commentary – research) and Blockbuster Video (BBI:NYSE), before it was acquired by Viacom (VIA.B:NYSE).
Arguably the most famous reverse merger is Berkshire Hathaway (BRK.A:NYSE), the old-school Maine textile manufacturer that was taken overby Warren Buffett when he bought the controlling interest in the company and then merged his insurance empire into it. The only thing he didn’t do was change the name.
To be fair, probably 90%-plus of reverse merged companies fail. But this is not because the process is bad but because, like with IPOs, or any area of life that touches the investing (read: gullible) public, there are those who abuse and take advantage of the system; I’ve written about some of these situations in prior columns in this space.
Like anything in investing — good, profitable, growing companies will eventually shine. The beauty of the reverse merger process is that diligent work can uncover these gems before the investing public is told about them by the larger banks.
Recent examples of successful reverse mergers include RAE Systems (RAE:Amex), which did a reverse merger in 2002 at approximately 20 cents a share and is now cruising between $2 and $3 after reaching a high of $9.50. And Intermix (MIX:Amex), which merged into Motorcyle Centers of America, a business with no operations, in 1999, went through several years of pain and below-$1 prices before emerging as a successful e-commerce player that currently trades at $5.70. Global Sources (GSOL:Nasdaq), a China-focused business-to-business play, reverse-merged with asset less shell Fairchild and now has a market cap of $250 million, $50 million in cash, no debt and $22 million in EBITDA.
Another recent example is CKX (CKXE:Nasdaq), formerly Sports Entertainment, which traded under the symbol of SPEA.ob. On Feb. 7, SPEA, a stock trading at the 5-10 cent level, announced a reverse merger with Elvis Presley Enterprises, which controlled all the rights to Elvis Presley’s estate. Since then they also announced a deal with the producers of American Idol. Now the stock is trading at $26.64 and has a $2 billion market cap.