The structural aspects of making a market economy work are not necessarily something that most investors pay attention to. For the most part, an investment is usually made in a company or financial product that already exists and is producing some good or service. There are, however, some investment vehicles that remain hidden so that a good or service can be moved forward through the combination of companies or ideas. These “shell” companies, as they are often called, sometimes take on a negative connotation, but if they are used properly they can become a nice profit vehicle.
Middle Kingdom Alliance Corp., a shell company created with the intent of forming a transaction, for the purposes of doing business in China, is currently in the process of doing so. The resulting company will be formed through the merger of Middle Kingdom Alliance Corp. and Pypo Digital Company Ltd. The merged company will be called Pypo China Holdings Ltd. The end-market served by the merged companies will be retail distribution and operation of digital phones.
From a general point of view, the merged companies will be orienting their activities toward selling Samsung mobile phones into a potential 1 billion phone Chinese market by 2012. Samsung is currently the #2 cellular phone brand in China and is generally considered a solid and stable brand. What makes this merger so profitable for the company, past the merger details that pay Middle Earth $378 million or 12x IPO value, is that Pypo has a solid retail distribution network (that covers 350 cities across the country) in a market that is generally considered fragmented. To address this particular opportunity, Pypo has set out to assemble a group of companies to solidify the market and become a powerhouse mobile phone retail player while broadening its overall mobile phone offerings along the way.
Accomplishing the new company’s goals will be aided by the solid financial backing that Pypo has assembled. Middle Earth’s in place capital will be added to Pypo’s assemblage of $140 million from investors and on-going support found from Golden Meditech Company (a Hong Kong investment company) and ARC Capital Holdings (a London based AIM-listed fund.) From all appearances, money has come together in a fairly structured way to attack the retail mobile phone opportunities that China has to offer. Middle Earth Alliance Corp. was formed to facilitate a business happening in China and generate a few dollars along the way. Although Middle Earth may soon go away in name, it does look to have accomplished its purpose and will continue to generate many more dollars as the Chinese population dials up their mobiles.
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