Old companies don’t die, they become part of a shell game
Kupper Parker Communications was a St. Louis advertising agency that went out of business in 2006. Imagine my surprise, then, when I saw a news release that said Kupper Parker is buying something called Americas BioTech Corp. Have our onetime ad wizards managed to resurrect their company and find a promising new business?
Nope. What’s really happening is that the Americas BioTech folks, based in Dallas, have gotten hold of Kupper Parker’s publicly traded shell. That’s right: Even though the company has been out of business for two and a half years, traders have been able to buy and sell its shares on the Pink Sheets market. Go there and you’ll find Kupper Parker trading for 4 cents a share, up from as little as 0.2 cent in early September.
Americas BioTech seems to have an unusual pedigree. It’s being formed in the merger of a Canadian pharmaceutical company and a South American agricultural processor. It plans to do a 1-for-20 reverse stock split, a typical move in this type of penny-stock deal. The new company is going to be in the biofuels business.
We’ve written about other obscure companies formed from shell-company mergers, and the stories almost always end badly. Regular readers may recall Solar Night Industries, which went public by merging with a technology-company shell that had once been a career-counseling firm. Then there was Challenger Powerboats, which used a web-designer shell that had once been a trash-to-energy company. Promoters tend to gain control of these shell companies, merge them with a flavor-of-the-month company, hype them for a while and then move on.
Another failed St. Louis company, Ultradata, was involved in a deal similar to the Kupper Parker “acquisition.” Its shell was merged last year with China Huaren Organic Products, a food company. The new shares surged from 54 cents to a peak of $3.00 last October, but they’re now worth just 14 cents.
For investors, a shell-company provenance should be a bright red flag. Stay far away from any company with such a history.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
I think you will see more of this as the country reels from the unitended consequences of Sarbannes Oxley. The cost of getting public is just too high for new companies. This will be a negative as we try to grow new companies in the future. While recycled public shells usually are hail Mary’s, they should be distinguished from Rule 419 shells and SPAC’s (Special Purpose Acquisition Corporations) which are shells formed for the purpose of acquiring existing private companies. Investors should look at the management of these kinds of business combinations.
Another interesting piece! However, I read David’s column in today’s paper and just had to comment on that…
I have been away from blogging for awhile, due to the ad hominem responses I typically receive from the right wingers, but see that David continues to spout the US Chamber of Commerce/Show-Me Institute drivel almost virtually down to the dot at the end of a sentence. The Obama Agenda needs to be totally devoted to fixing the Wall Street crisis at the expense of addressing the needs (healthcare, labor rights, foreclosure issues, infrastructure, jobs, etc.)In another section of today’s paper, a short item from “news services”(aka AP, Cox, or Bloomberg, most likely), the US Chamber of Commerce said the same thing. When is the Post-Dispatch going to apply some diversity to its Business Section? The lame duck occupant of the White House and his followers claimed a decisive mandate after a two and a half percentage win in 2004; can not Obama exercise a even more credible mandate given his more than six per cent win on Tuesday? Why should he bow to the same laissez-faire haters of government regulation of business who were so decisively routed by Tuesday’s election(and more decisively by the Wall Street crisis itself)? In order to rebuild the American Dream and the American middle-class, Obama needs to move with deliberate speed to undo the damage of the Reagan/Bush years. Put the kool-aid down, David!
As an advocate of free markets that operate within a framework of government regulation, I would observe this in response to Whiterosesociety. The Wall Street “gurus” who (1) managed to make multi-millions by creating and selling highly-leveraged, fundamentally shaky securities (building upon the economic naivite’ of Democrats trying to subsidize home ownership through ham-handed meddling in private financial markets), and then (2) flaunted their wealth with multiple mansions, yachts, private jets, etc., really gave capitalism a black eye. They are traitors to the cause of free markets. I hope that the result will not be so much of a populist backlash that the potential of free markets to allocate resources efficiently is smothered by excessive government micromanagement of the type that has failed in Communist countries. One of the first places to look for this is in government controls of the auto industry linked to government loans made in reward for Democratic votes in states such as Michigan and Ohio.
The data that David presents on the extreme fluctuation in the price of shares of “pink sheet” companies is an appropriate warning to people that buying them is more like gambling (where the odds are against you) than investing (where the odds are in your favor over the long term).