In my previous installments of "things that stink on ice"-- persistent market phenomenon that need to be scrubbed from the face of the earth -- I focused on brain-dead investors in cult stocks and corporate executives who treat stockholders with the compassion of a well-oiled Victor mouse trap by using reverse stock splits.

Well, I screwed up. I was aiming far too low. These two Roundup-resistant stock market super-weeds are nothing compared to the biggest stink bomb of them all: The reverse merger.

Back in the 1990s I used to stumble upon reverse mergers all the time, when I was covering the "chop stock" stock fraud beat. They're still popular among the microcap crowd, but in the intervening years they've grown up, just like reverse mergers. I had just about forgotten about them, until I read the other day that Wayne Huizenga, the Waste Management mogul, was bringing something called Swisher International into the public domain by merging it with a shell company called CoolBrands. As its name implies, CoolBrands used to be in the frozen-snacks business. It manufactured treats like the Eskimo Pie and Chipwich but disposed of most of its operations a few years back. Swisher is in the laundry and cleaning chemicals business, which of course has no relationship with frozen desserts (unless you drop one of 'em on the floor and have to clean it off).

Like reverse splits, reverse mergers give a peculiarly anti-shareholder stench to the most innocuous of companies. Reverse mergers are even more toxic, by circumventing the entire initial public offering process. Instead of hiring an investment bank to bring a company public, thereby exposing it to the (theoretical, at least) scrutiny of the Securities and Exchange Commission and state regulators, reverse mergers take publicly held "shell" companies that exist mainly on paper, and merge the private company with a comatose shell or bankrupt company. This effectively takes the company public, bringing it into the public domain without all that annoying public-company paperwork -- which has, of course, the not-so-annoying purpose of providing investors with some ostensible protection.

Now, let me hasten to add that I'm not suggesting that Mr. Huizenga is doing this to screw anybody. He built Waste Management into the trash-hauling behemoth that it is today. I remember fondly how Waste Management and other big haulers broke the backs of the Mob in the New York garbage business a decade ago. He also built the Blockbuster ( BBI) video-rental chain and AutoNation ( AN), the big publicly traded used care dealer, both of which came into the public domain via the traditional public-offering route. He gives a lot of money to charity. He seems like a good egg all around. But what he's doing is not so good. He should bite the bullet and take Swisher public through the more conventional IPO route.

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