Overview of the Reverse Takeover Essay

Submitted By shuran1014
Words: 2918
Pages: 12

1. Overview of The Reverse Takeover
Reverse takeover means a private subsidiary company exchange most of its shares to a dormant listed shell company and then the shell company issues large dilutive blocks of share, which causes the previous shareholders in the “active” subsidiary company obtain the control of the shell company. The reverse takeover may confuse investor because the complicated process. However, there is also the legal acquirer and acquiree existed in the reverse takeover. Also, the consideration is difficult to identify. The first part of the report is to identify the legal acquirer and acquiree, consideration paid, acquisition form in the reverse takeover of the MDSnews group limited as well as financial performance and position of the legal acquirer immediately before entering the transaction. 1.1 Legal Acquirer and Acquiree
Prior to the AASB 3, the legal acquirer and acquiree are determined by the legal arrangements and the acquirer is the entity that issues shares to obtain other entity for accounting purpose. However, according to AASB 3 Business combinations, all relevant factors should be considered to decide the acquirer which has the power to determine the financial and operating policies. As a result, the legal subsidiary will be the acquirer for accounting purpose in some cases such as reverse acquisition. Under reverser acquisition, a private company exchanges its shares with a small listing company to make itself acquired by the listed corporate and then the shareholders control the majority voting right of the listed company. Through this way, private company can be listed bypass the lengthy and complex process. Basically, the legal acquirer under reverse acquisition is the unlisted private company. As a result, the MDSnews Limited is the legal acquirer and CommSoft Group Limited is the legal acquiree in this transaction. 1.2 The Consideration of The Transaction
In AASB 3 required, the consideration of the transaction should be measured on the most reliable base. After acquisition, the company’s name was changed to MDSnews Limited. The previous issued capital of CommSoft Group Limited that is 406,524,494 shares were consolidated into 1,061,422 consolidated shares. It also issued 6,053,086 shares to convertible and secured convertible note holders. 20,000,000 prospectus shares were issued then. Furthermore, it issued 41,750,000 consolidated shares to previous shareholders of MDSnews Limited. The final projected issued capital in MDSnews Limited is 68,864,508. Among these, the issue of 41,750,000 consolidated shared is consideration of this reverse takeover. 1.3 Acquisition Form
Refers to the consideration in the reverse takeover, the acquisition was undertook by the form of share purchase agreement. The agreement was conducted by the CommSoft Group Limited and the MDSnews Shareholders on 13 May 2005. It illustrated the acquisition betweens parties about the acquisition by CommSoft of all the Sale Shares. 1.4 Financial Performance and Position of The Legal Acquirer before The Transaction
According to the MDSnews Limited’s annual report for the year ended 30 June 2005, total revenue is $ 1,692 and its net loss is $ 157,065. The total asset is $480,280. The return on equity is 10.22% and the return on asset is 32.7%. The return on asset is extremely high.
2. The Approval Regulations
Companies ask for complying with some regulations and rules to complete the transaction. In this report, it will state that MDSnews Limited satisfied the Corporation Act (2001) and the Listing Rules of Australia Stock Exchange (ASX) when the company completed the transaction of reverse takeover with CommSoft Group Limited. Meanwhile, the report demonstrate that the responsibilities of the board of directors and the role of Independent Expert as well.
2.1 Corporation Act (2001) Sec157 (1) (a)
ASX Listing Rules require it must pass a special resolution for using a new name when a