Mega chief executive Stephen Hall is defending its backdoor listing through shell company TRS Investments - a major shareholder of which is facing market manipulation charges across the Tasman.
Kim Dotcom. Photo: RNZ
A back-door listing is when a company folds itself into an already listed entity, and the company's shareholders become the listed entity's major shareholders.
Mega's shareholders have conditionally agreed for all of its shares to be acquired by TRS, for $210 million, to be paid for by issuing shares.
The online storage and encryption business founded by Kim Dotcom was launched in January last year and its major shareholder, with a 26.5 percent stake, is Mr Dotcom's wife, Mona Dotcom.
The deal will be funded by the issue of 700 million TRS shares to Mega's shareholders at 30 cents each.
TRS currently has 1.1 billion shares on issue but this will be consolidated down before the deal is completed, leaving existing TRS shareholders with 1 percent of the business.
Mr Hall said a listing had always been part of Mega's strategy, and a backdoor listing suited the company.
"There's a lot of plusses and minuses, no matter which route is chosen, but as the NZX mentioned in their guidance note, this sort of process is a time and cost-effective way of listing," he said.
Backdoor listings have a poor reputation, and most companies which list that way don't tend to fare well. However, notable exceptions include Abano, which first found its way to the market via an Eric Watson vehicle.
Not relevant
But Mr Hall insisted what had happened to other backdoor listings was not relevant to Mega.
"We feel Mega is a very successful and growing company and we're looking forward to a positive listing."
The deal is subject to approval from TRS' shareholders, the major one of which, Paul Choiselat, is facing 25 charges brought by the Australian Securities regulator relating to market manipulation and concealing his interests in shares of listed companies.
That matter will be before the Melbourne Magistrates Court on 7 April.
Shareholders Association chair John Hawkins said while the association did not have a policy on backdoor listings, there were pluses and minuses with the process.
"The major plus is that the company that is being used as the vehicle may have no other assets other than its listing, and so from its shareholders point of view, this is probably one way to realise some value out of the listing," he said.
"The only other option is that they could deregister, and any value then is gone. So from their point of view it's not a bad deal."
However, the association had mixed feelings from the perspective of a company that was using a shell to get listed.
"We would much rather companies had the oversight that comes when you do a proper IPO, a proper, normal listing," Mr Hawkins said.
"Anything could get listed through a backdoor listing, and that may not be entirely to the benefit of the sharemarket."
Mr Dotcom stepped down as a director from the Mega business in August last year but remains a principal strategist.
Mega calls itself the privacy company, and says its users control the encryption for the data they store.
It says it has seven million registered users, with new registrations exceeding 20,000 a day.
