The trading volume of Reach Messaging Holdings, Inc. (OTCMKTS:RCMH) indicates that market sentiments on the stock are strengthening. Additionally, the stock has drawn the attention of financial media as well as stock forums. Thus, we believe that a new piece of this name would also interest our readers. Before we provide our vision on this company, please have a look at the share price action in the following stock chart:
2 years chart for RCMH
In February, more than 0.5 billion shares have changed hands. While the market did not receive new information from RCMH, David Foster filed a 13G stating holdings of 3.21% or 64,200,000 shares. In our view, it is interesting to understand who is this shareholder, and what are his motivations. This is what we will try to explore in this piece.
There is more. Several Market participants are telling that a reverse merger may occur between RCMH and another third party:
David Foster - Reach Messaging Holdings, Inc. OTCMKTS:RCMH
While we believe that this idea may bring stock gains to RCMH, this rationale, in our opinion, is still unfounded. Be sure to read the whole article in order to regurgitate all the information.
Will a reverse merger occur?
Reach Messaging Holdings, Inc. and its wholly-owned subsidiary Reach Messaging, Inc. was formed to assist publishers and advertisers reaching the millions of ‘tweens’, teens, and ‘generation Y’ through the internet and mobile instant messaging platforms. The group of companies was created on September 19, 2007, and it is headquartered in Ashburn, Virginia.
Since the company stopped uploading its financial statements in 2011, the market participants are speculating a reverse merger situation here. In a transaction of this type, a private entity acquires a public company and gains access to the financial markets. It is a less expensive process than that of a conventional initial public offering and is also faster.
For RCMH, the transaction would also be a great idea. Reach Messaging will not only increase its balance sheet thanks to the merger, but could also obtain the know-how, increase the number of employees, and enhance its credit profile. Taking into account the current situation of the company, we agree with what other participants have said; it would mean millions for RCMH.
What do we need to look at?
Market participants will look closely at the number of shares outstanding as well as the number of authorized shares. In our view, if RCMH is negotiating a reverse merger, the first step may be an intention to increase the number of authorized shares. Why? Because it is likely that the buyer will do it right after the reverse merger takes place. RCMH could do it to please the buyer or to accelerate the process. The following is information about the number of shares outstanding. Be sure to memorize these numbers. We have already done it:
Share Structure - Reach Messaging Holdings, Inc. OTCMKTS:RCMH
Interested readers should also contact the transfer agent in order to gain access to more information. We don't really understand why the company is not providing all the required details.
The Market Reactions
David Foster has been acquiring shares of the company for some time. The market was informed for the first time in March 2017 when he acquired approximately 52 million shares. Please note that when the new stake was revealed to the public in 2017, the share price also spiked up. It means that the market is aware of the intentions of Mr. Foster. Market participants seem to be acquiring new shares everytime this shareholder acquires more shares. Have a look at the following image:
Stakes in the company - Reach Messaging Holdings, Inc. OTCMKTS:RCMH
Why do we need more information?
In our opinion, a reverse merger is likely, but with the documents at hand, we cannot 100% confirm it. The first reason is that David Foster is telling that it is not acquiring shares in connection with any transaction or to influence control:
"By signing below I certify that, to the best of my knowledge and belief, the securities referred to above were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of the issuer of the securities and were not acquired and are not held in connection with or as a participant in any transaction having that purpose or effect."
Readers will surely claim that many times acquirers say this and then they approve the transaction with another third party. We understand the point. However, we believe that the doubt is not enough to believe that the sentences of Mr. Forster are false.
Additionally, the company has not released any information regarding a potential sale or negotiations with any third party. It is the duty of the Board of Directors to report any conversations. Thus, if they did not say it, we believe that they have not existed.
Conclusion
Currently trading with a market cap of $0.084 million, RCMH is an interesting story among micro small caps. Readers need to understand that the risk is high on this name. If a reverse merger occurs, the share price of RCMH could run delivering outstanding stock gains.
On the other hand, if David Foster is telling the truth and he does not intend to acquire the whole company, the share price could remain at the same share price level or decline. Please, be sure to keep in mind that the following sometimes work out and sometimes doesn't:
Buy the Rumor Sell the News - Reach Messaging Holdings, Inc. OTCMKTS:RCMH
Disclosure: We have no position in RCMH and have not been compensated for this article.
Image courtesy of Sam valadi via Flickr.
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