Why Larry Page snubs his brother

Ah, wait, maybe this is why Google Finance pussyfoots around Handheld Entertainment. Carl Page, Handheld co-founder and brother of Google co-founder Larry Page, took his little company public with a reverse merger (buying out the private Handheld with one of those shell companies).

Which is fine, and Handheld is surely a fine upstanding company. Just that the Mercury News says 54 percent of reverse mergers fail within two years.

And that reverse mergers are an old tactic for corrupt stock dumps.

And that Handheld lost $2.3 million in the first nine months of 2005.

And that one of the few Google results for its two-week-old stock symbol is a blog post that basically reads, "Don't invest in them. They're not making money."

Page's brother uses tactic with tainted history [Mercury News]
Handheld Entertainment (ZVue) Sort of Goes Public [SharkJumping]

Update: I don't know a thing about finance. A reader explains why, in great detail, after the jump.

Forgot to include the caveat in this entry: I'm just messing around with the Carl Page story, and did not mean to actually imply any knowledge whatsoever of real financial dealings. Here's one reader's e-mail explaining why Carl Page doesn't suck.

This was a really bad post which seems to just highlight a lack of knowledge with respect to finance and especially financial engineering. You should really be sending this kind of post past a few investment bankers, consultants or MBA types before putting it up rather than just going for some cheap shots based on bad Mercury News reporting.

Reverse mergers tend to be used as an inexpensive and fast way of raising capital. You bypass the skim of the typical M&A house and can get money without having to pay for the bridge financing (provided by your underwriters or VCs) that takes you through the months of an IPO. It's a great way to go public and raise money for companies that are ill-served or ill-matched for the VC funding model and not big enough or developed enough for a classic IPO, where the typical process's fees represent a minimal amount of the money raised. The reason why so many reverse mergers go bad is that they tend to be early stage companies. It is an especially popular tactic in the resources sector, where exploratory startups typically raise money in public markets rather than through private sources such as VC as is the case in Tech.

So should one be more cautious about buying shares in a reverse takeover? Sure. Is it because they are crooked? Uhh, no.

As to why Google Financial isn't showing much info on Handheld: cause it's not trading on an exchange, but rather in the Over The Counter: Bulletin Board (aka OTC:BB, aka ".OB"). When you look up other OTC stocks, you don't find their information listed on Google Financial either.

OTC stocks and reverse takeovers tend to be very risky. They are very speculative (either based on high risk new ventures, or a stock is OTC because it was delisted due to significant problems and is a turn around story) and have small market caps. Have their been a number of crooked things happening in these stocks? Yes, just as there have been many crooked things happening in other public and private companies, and in charities, government, education... Implying that 54% fail due to pump and dump is just wrong.

I'm a big fan of the site, loved the Larry and Lucy pics (big props on getting on CNBC), you've been writing some great stuff and are really committing to the project by leaving school to do it. But on these posts, you're wrong, you're bad, and it doesn't seem like you know what you're doing.

Wow. Points taken, lesson learned, and big bouquets of flowers sent to the Page brothers.