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Any day now, the first steps will have been taken to pave the way for former jewellery chief Gerald Ratner's stock market comeback. DP Egami, originally floated on the Ofex private share market as a remote imaging provider, is raising £1 million in a private placing at 10p a share.

If all goes to plan, this reverse takeover will lead to the establishment of D'Etre as an on-line jewellery business, run by Ratner and almost certainly re-named as Ratners or something like it. The operation, masterminded by Ratner and small company issuing house Matrix Corporate Finance, is one of a string of 'shell company' deals under way or being planned throughout the City.

Beguiling investors

Several City players are currently looking to beguile investors with shell companies. They argue today's doom-laden stock market atmosphere provides just the right climate for shells as an alternative route for ambitious entrepreneurs with bright ideas.

These corporate 'empties' have nothing but a stock market quotation and, sometimes, some cash. But, almost invariably, there is someone at the helm who is believed to have some viable money-making ideas.

The shares of most of the shells being touted are also bombed out. For many, if they go anywhere it will be up - or out.

Ratner joins Mike Edelson, northern wheeler-dealer and Manchester United director, Luke Johnson, the midas-reputationed entrepreneur famed for reversing Pizza Express into a semi-defunct Star Computers, ex-stockbrokers Richard Owen and Geoffrey Simmonds and a string of others in the shell game. Shells now being activated include Orchard Furniture, British Bloodstock Agency, J2C, boat company Anglo Welsh, West Side Acquisitions, Tech Israel and Argon.

South Sea bubble

Shell companies have been popular with investors ever since the South Sea company invited punters 300 years ago to subscribe money for a purpose which would later be made known to them. Some have become household names after being taken up by some budding tycoon or other, though others have ended up ignominiously on the financial sea bed, and the risk/reward ratio is much the same today.

Recently, bouts of selling on the stock market have forced both investors and companies looking for finance to rethink their games. In the new climate brought about by corporate and economic shocks from the USA to Japan, caution is king - and so, argue some persuasive practitioners, is cash.

'Forget new issues'

'You can forget new issues for now', says one stockbroker in the thick of the small- to medium-sized company morass. 'But you can reverse into a company which has cash and not much else' - provided, he omits to add, that the shell's new boss can be trusted not to burn away its cash as the old ones did.

Shells do nothing but can be taken in hand by people who have something they want to do. They come in many shapes and sizes, but are usually leftover corporate husks from businesses which have become obsolete or whose primary operations have somehow foundered.

Cash shells, with funds either left over from the company's previous incarnation or raised to back the supposed flair of its new proprietors, offer a budding entrepreneur access to a quoted company and funds to get going. 'Clean' shells, without cash, offer the same stock market presence and a ready-made list of shareholders who might be prepared to stump up some cash if the new regime running the company comes up with some plausible ideas - 'we like people we know on the register', says John Bridges of Matrix, 'who are not afraid to reach for their cheque books when it is appropriate, which is worth more to us than a lot of Mr Patels from Bradford'.

Cazenove's shell

Cazenove, the City's grandest and last remaining independent stockbroker, is advising British Bloodstock Agency on becoming a cash shell. BBA is to sell its trading activities, returning £1.88 million of the £3.78 million cash that sale should generate to shareholders and keeping the rest for future ventures.

BBA's British business is to go to director Charles Hamilton and its Irish arm is being sold to a group including another BBA director, Adrian Nicoll. At 91.5p on Aim, BBA thus joins the ranks of intriguing shell prospects.

Edelson's latest offers

Edelson, meanwhile, who often works hand in glove with Derek Holmes, the celebrated 'white rat' of stockbroker Fiske, has been considering propositions for Mottram, a shell company he heads, which has some £2.5 million of cash in its coffers. He also has stakes in Orchard Furniture, a shell with £16 million of cash whose latest fundraising was underwritten by Holmes and his Fiske colleague Richard Armstrong, and in Argon, a Fiske shell quoted on the Ofex private market with £1 million cash.

Holmes reports that people are beating a path to these companies' doors with all kinds of proposals. 'Shell companies are spoilt for choice', he claims. 'We have looked at dozens of schemes'.

Arguing that this is a buyers' (or cash shell's) market, he adds: 'inevitably there are often rows over valuation of deals. The proposers go away, but they come back again soon enough'.

Another shell backed by Edelson is Anglo Welsh, a former boating company whose £4 million cash is being deployed by Stephen Thompson, another seasoned shell company operator. To turn Anglo Welsh into a shell, Fiske sold off its last businesses, but the company will still draw some royalties from them.

What's on Aim?

Fiske is also advising Aim-quoted Jab, down 4.5p in 12 months to 3.25p, steered by John Collins and with £9.5 million cash in its coffers, and Oxygen, which has stakes in some of its other shells and is claimed to have 4.5p cash, against a share price of 1.25p, down from 50p last year. Elsewhere, Luke Johnson and fellow directors of Aim-listed J2C, headed by Sir Michael Betts, are considering a series of deals, one of which could be agreed imminently. The aim is to slash the former e-commerce investment company's £350,000 a month cash burn and make use of its £40 million cash resources, says director Karl Watkin, who maintains the company has an asset value of 42p per share in cash. That compares with a recent market price of 28p - little more than a tenth of its all-time high.

At the other end of the spectrum, stockbroker Seymour Pierce, which is itself the product of a former shell company, ship's chandler Captain O.M.Watts, is active in the shell game. It is particularly keen just now on Westside Acquisitions, an Aim-listed shell whose shares have plunged from 24.5p to 3.5p over the past year.

Claiming cash of 6p a share, Westside is run by Richard Owen and Geoffrey Simmonds, former leading lights at now-defunct stockbroker UTC. UTC used to employ Clive Mattock, now a guiding spirit at Seymour Pierce.

Last chance saloon

Sometimes shells are formed by corporate advisers who want to offer investors in some of their unsuccessful ventures a second chance. Thus, Matrix engineered the resurrection of Asquith, former Ofex-quoted antique-designed taxi company, as Croma, an electronic surveillance specialist headed by former SAS hard men and now understood to be poised for a big expansion move. Cybertec, a Matrix ex-shell, is also geared up for deals.

Last year, the former United Energy became Web-Angel, ceasing to be an oil and gas producer and becoming instead a would-be investor in e-commerce and investment businesses, with corporate financier Christopher Stainforth on the sidelines. The timing was hardly ideal, though the company, now 8p on Aim against a 31p high, has made one or two investments by now.

Shell values

In bull markets, cash shells are valued at a premium to their cash value on the basis of the ability of their directors to do deals. In bear markets, as arguably now, they often trade at discounts to their cash, which implies some at least offer good value for investors prepared to wait for something to happen.

The value put on 'clean' shells, with no cash and no liabilities, can vary widely according to market conditions. Ofex specialist Bridges comments: 'A clean shell on Ofex can be worth anything from £50,000 to £150,000 according to the state of the market'.

The London Stock Exchange will not list shell companies, but will allow listed companies which become shells to keep their quotations as long as they are convincingly seeking to find an activity. Aim will list shells, but places the onus for ensuring they carry out their stated intentions on their nominated advisers.

All shells are risky. Those which look best placed to succeed include British Bloodstock Agency, J2C, Orchard Furniture, Anglo Welsh, Mottram and, when Ratner shows his hand, the former DP Egami might be one, too.

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