WHEN companies change their name, investors usually just see the tip of the proverbial iceberg.
WHEN companies change their name, investors usually just see the tip of the proverbial iceberg.
In most cases, the name change is the culmination of a protracted restructuring that involves ‘cleaning up’ a failed company so that it can start a new life.
Stockbrokers and corporate finance firms such as Ascent Capital, Grange Consulting and Patersons Securities have managed a range of corporate revivals.
They provide a vehicle for unlisted businesses, technology developers and mining entrepreneurs to effect a ‘backdoor’ listing on the Australian Stock Exchange.
Backdoor listings also give shareholders in failed companies a chance to recover some value from their original investment.
The success of backdoor listings is as widely varied as traditional company floats.
There are spectacular failures, such as this year’s collapse of Metabolism Health just a few weeks after it completed a backdoor listing (via the shell of Mustang Group).
And there are spectacular successes, such as syringe developer Unitract, which has delivered big profits to shareholders in Musgrave Block Holdings who had the patience to stick with the company.
Other successes include Andrew Forrest’s Fortescue Metals Group, which is pursuing an ambitious plan to develop new iron ore mines and infrastructure in the Pilbara.
On the technology front, Kevin Russeth’s QRSciences, which has developed new technology to improve airport security, has also been a big winner for investors.
While many name changes are associated with a complete change of direction, other companies are more evolutionary in their changes.
Shareholders in information technology company Amnet, for instance, have seen the company sell its IT business and adopt the name Hailian International.
The name change arose after Amnet agreed to provide technology and other services to Chongqing Hailian University in China. The board of directors, which is largely unchanged, decided the education sector should be its main focus and changed their name and activities accordingly.
When companies change their principal business, such as switching from mining to biotechnology, they normally need to obtain shareholder approval.
Corporate lawyer Neil Fearis, of Fearis Salter Power Shervington, said the ASX decides what constitutes a “significant change” on a case-by-case basis.
As a rough rule of thumb, if the change of activities involves increasing the company’s share capital and/or total assets by more than 100 per cent, then the ASX will invoke its Chapter 11 listing rules.
“As well as obtaining shareholders’ approval, the company will be required to issue a prospectus or information memorandum with respect to its new activities, and to satisfy the same admission requirements as a new company seeking an ASX listing for the first time,” Mr Fearis said.
