The Power of Being Public Lessons Learned From a Reversed Merger

Summary

The late 1990's marked an increase in corporate consolidation, especially in the oil and gas industry. As E&P companies emerged as mega-majors and super-independents were born, the mid-size and smaller independents faced finding creative ways to compete.

In 1998, when the window of opportunity was narrowing for companies to go public, Fort Worth-based Quicksilver Resources Inc. began negotiations with MSR Exploration Ltd. on a reverse merger as a way to become a publicly traded company. In this case, Quicksilver purchased a public company (MSR) for common shares and the stockholders of Quicksilver controlled a majority of the newly formed company's common stock.

Due Diligence

Ironically, Quicksilver's strategy did not start with the intention of acquiring a public company. In fact, the management of this private, closely held family business was simply seeking avenues for growth with all options open for consideration. Quicksilver considered initiating a traditional initial public offering (IPO), but the financial climate for oil and gas companies was stormy. Access to capital was critical and the company was pursuing alliances with larger financing companies. In 1997, discussion over property asset acquisitions eventually led to the boards of Quicksilver and MSR determining that a merger of the two companies would be mutually beneficial. Both companies had contiguous producing properties in northern Montana. Negotiations began in late 1998, at a time when only two oil and gas companies were pursuing traditional IPO's, suggesting that timing wasn't right for Quicksilver to do the same. Quicksilver recognized that the reverse-merger option appeared to be the reasonable, near-term solution for Quicksilver's aspiration for growth, unless the company waited for the cycle to change.