Mega Ltd, Kim Dotcom's data storage and encryption company, is seeking a backdoor listing on the NZX valuing the firm at $210 million.
But fund managers spoken to by 3 News say they are sceptical about backdoor listings because they don't require businesses to undergo the same rigorous checks as IPOs.
Shell company TRS Investments will buy 100 percent of Mega for $210 million, which will be satisfied by the issue of 700 million new shares in TRS to the existing Mega shareholders at 30 cents apiece, TRS said in a statement today.
It will then undertake a 148-for-one consolidation of its existing share capital, leaving Mega shareholders owning 99 percent of TRS and adopt the Mega name.
A backdoor listing is a strategy used by some companies which may fail to meet criteria for listing on a stock exchange. They instead acquire an already listed company in order to go public.
One fund manager, who did not want to be named, says backdoor listings mean there is less risk for directors because they don't have to sign off on a retail prospectus. This means they can make statements which have not been verified.
There is a lower level of scrutiny compared to the process of having every document for the IPO checked and verified.
TRS shares were unchanged at 0.1 cents, valuing the shell company at $1.1m.
Mr Dotcom staged a full-scale global media launch for Mega in 2013 to replace Megaupload, his previous venture which was shut down in a US-led operation that alleged the file-sharing firm and its owners had committed mass copyright infringement and money laundering of more than $US500m.
Mega's existing shareholders include Mr Dotcom's wife Mona, who owns 26 percent of Mega via MD Corporate Trustee Ltd, followed by Wolf Ortmann with 18 percent, and Michael Sorensen via VIG Ltd with 11 percent, according to Companies Office filings.
John Schollum, via Hobson Street Holdings, emerged as a Mega shareholder this week with a 2.3 percent stake.
Mr Dotcom stepped back from a hands-on role at Mega last year, resigning as a director in August to focus on his extradition proceedings, music streaming website and political aspirations via the Internet Party.
The deal needs approval from TRS shareholders, and is conditional on regulatory approvals.
TRS's biggest shareholders are Paul and Lynette Choiselat, who own 73 percent of the company.
NZN / 3 News