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Cash-and-Carry Shell

A shell company whose owners wish to sell most or all of the shell's ownership for cash, rather than participate as equity holders in a merger with an operating business.

Rather than convincing the shell owner to merge with them and leave the shell’s owners with a percentage of the equity, the private company takes over 100% of the shell’s stock. This is done through cash being put into the entity upon a merger, whereupon the former shell repurchases the stock of the former shell owners.

Additional Comments:

What are the advantages of this approach? One major one is that the negotiation process between the private company and the shell becomes non-existent. The merger agreement is a virtual non-event, as the owners of the shell know they are being cashed out and do not really focus on things like representations and warranties of the private company.

Second, there is no process of convincing the shell owner of the value of your business so they will provide the shell to you. Since you are paying cash, it is simply a matter of agreeing on a price for the shell (which happens quickly) and the discussion is over.

Third, the counsel for the shell (if there even is one for this) is not likely to spend any time at all doing due diligence on the company merging in. Again, that process is to protect shareholders, all of whom will be gone upon closing. Of course the private company will review the due diligence of the shell, but for Form 10 shells this is an extremely simple process.

Related Terms:

Clean Shell
A shell company which has no liabilities or other negative attributes as perceived by an operating ...

Backdoor Registration
A method by which a company's shares can become publicly tradable through a merger directly with ...

Alternative Public Offering
(APO) Somewhat misleading term used to refer to the variety of methods of going public other ...

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