Mega, the online storage company set up by Kim Dotcom is to list on the NZX. Herald stock market specialist Tamsyn Parker offers some insights on stock exchange back-door listings.

Mega's back-door listing on the share market is an unusual move for the size of the deal.

At $210 million it will be one of the biggest if not the biggest to take place on the New Zealand share market.

Back door listings - where an already listed company buys the assets of another company are typically routes used by smaller companies to get on to the stock exchange.

They are seen as a cheaper way to get onto the market than a full initial public offer which can cost $5 million at the minimum once lawyers, investment bankers and advisor fees are paid.

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Smaller companies are typically bought for tens of millions rather than hundreds of millions making the back-door option a much smaller percentage of the deal.

Many professional investors frown on the back-door approach and it hasn't been seen as overly successful in New Zealand.

Companies who go down that track don't have to produce a publicly available prospectus with financial details before the deal is done.

The deal is conditional on shareholders in the existing listed company giving their approval.

In the case of TRS Investments this seems a foregone conclusion as the controlling shareholder owns 73 per cent.

Typically 75 per cent shareholder approval is required.

The shareholders of the existing company have inside knowledge of what they are buying but those who buy shares on market once the new company is acquired don't.

The good news is once the deal is done the company has to comply to normal share market listing rules which includes providing half and full year accounts, holding annual general meetings and having the required number of independent directors on the board.

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See an NZX 'guidance note' on the rules and regulations around background and reverse listings: