Panda Ethanol Case Study

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Panda Ethanol Case Study
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Purpose of the Case Study

• Illustrates how
• A private firm can use a reverse merger in lieu
  of an IPO to go public
• Private investment in public equity (PIPES) may
  be used to finance ongoing operations following
  the reverse merger
• Reverse splits can be used to achieve agreed upon
  ownership distributions
• Purchasing stock in the prior to a merger
  proposal can be used to influence the outcome

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Key Participants

• Panda Ethanol
• Grove Street Investors
• Grove Panda LLC
• Cirracor

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Merger Terms

• One share of Panda Ethanol common for each share
  of Cirracor common
• Cirracor shareholders to own 4 of newly issued
  and outstanding common stock of the surviving
  company
• Panda Ethanol shareholders to own remaining 96
• Panda Ethanol to issue 15 million new shares
  through a private placement valued at 90 million
• Total Panda Ethanol shares outstanding
• --13.8 million existing shares
• --15.0 million new shares
• Total Cirracor shares outstanding 3.5 million

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Applying Reverse Splits
Shares Outstanding (Millions) Ownership Distribution () Shares Outstanding (Millions) Ownership Distribution ()
(Before Reverse Merger) (Before Reverse Merger) (After Reverse Merger) (After Reverse Merger)
Panda Ethanol 28.8 89.21 28.8 96
Cirracor Inc. 3.5 10.82 1.23 4
128.8/(28.8/3.5) 23.5/(28.83.5) 3A result of a 3 for 1 reverse split. 1.2 million shares subject to rounding. 128.8/(28.8/3.5) 23.5/(28.83.5) 3A result of a 3 for 1 reverse split. 1.2 million shares subject to rounding. 128.8/(28.8/3.5) 23.5/(28.83.5) 3A result of a 3 for 1 reverse split. 1.2 million shares subject to rounding. 128.8/(28.8/3.5) 23.5/(28.83.5) 3A result of a 3 for 1 reverse split. 1.2 million shares subject to rounding. 128.8/(28.8/3.5) 23.5/(28.83.5) 3A result of a 3 for 1 reverse split. 1.2 million shares subject to rounding.
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Discussion Questions

1. Discuss the pros and cons of a reverse merger
   versus an initial public offering for taking a
   company public.
2. Why did Panda Ethanol undertake a private equity
   placement totaling 90 million shortly before
   implementing the reverse split?
3. How were the Panda Grove investment holdings used
   to influence the outcome of the proposed merger?