Exit Strategies for Public Company Insiders
By William Cate
Published January 2001
[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
There are three ways that public company insiders can convert their
equity into cash.
1. They can sell their stock to the public. This is the goal of the
insiders in most OTCBB and Nasdaq Small Cap Companies. It's summarized in the axiom "Pump & Dump." The stock is promoted as the insiders sell their shares into the public buying.
The SEC has spent 60 years trying to stop this practice. We have
insider trading rules that ban it. Yet, the insiders' goal, in over 80% of
the OTCBB companies, is to dump their stock on the public.
This strategy is unprofitable for the promoters. It's not that the
promoters face undue risk from an SEC investigation. The odds of a high
flying turkey being investigated are about one-in-ten. The profits for
insiders in "Pump & Dump" schemes are small.
It costs money to promote stock. The insiders illegally pay outside
promoters with part of their free-trading shares. The average "Pump & Dump" company insider nets less than $150,000 from the stock promotion.
For example, the Canadian media believes the Bre-X Scandal was the
biggest mining stock scam in history. These newspapers reported that only
one insider made more than a million dollars from it.
2. The insiders can create an industry giant. It will qualify to
trade on the New York Stock Exchange. The insiders and their heirs can live
off their dividends and the occasional sale of a few shares of their stock.
This is the Capitalist ideal. The insiders will retire multimillionaires.
Since 1945, a few companies, like Microsoft or Apple, have made
this journey to success in less than a decade. For most companies, it'll
take them a lifetime to reach their goal. The insiders of these companies
have better odds of success in Las Vegas. This appears to be the
"Impossible Dream" of about 5% of the companies trading on the OTCBB.
3. The insiders can groom their public company as a takeover target
for an industry giant. Our spinoff test insiders are creating a
multi-dollar share price to allow them to fund their company. The equity
cash infusion will be converted into cash-producing business income. The
strong share price will be used to acquire cash-producing assets. In five
to seven years, the company should have a hundred million dollars in
assets. An industry giant will buy the public company based upon its share
price. The insiders will retire multimillionaires.
The odds of arranging a merger are better than the odds of creating
an industry giant. It takes less than ten years to become the perfect
merger candidate. It usually takes over 20 years to become an industry
giant. It makes sense to strive to be a merger candidate.
In ten years, a promoter can run about four "Pump & Dump" public
companies. These promotions could earn the promoter about a half-million
dollars. The promoter could create one real company and groom it as a
merger candidate. In ten years, the promoter can walk away as a
multimillionaire.
The most profitable strategy in going public is to build a company
and seek a friendly merger. It's this group of merger oriented
entrepreneurs that I want to help.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
About the Author
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]