Don't worry this will be my last post on the possible reverse. I will post the companies response to my inquiry after my discussion with them.
---------------------------------------------------------------------
>>Watch out for reverse splits!
Here's how a reverse stock split works. A company's stock currently
trades at $1. The company implements a one-for-five reverse split. Every
five shares of pre-split stock becomes one share. The investor, who had
previously held 1,000 shares, now owns 200 shares of the post-split
stock. The new stock price immediately after the split is $5. The market
value of the position, before and after the split, is $1,000. What could
be wrong about that?
Because when such a reverse split takes place, it's often a glaring
indication that all is not well at the company. True, the shareholder
does not suffer a loss of asset value or a dilution of ownership value.
But this equality is usually very temporary.
When a company undertakes a standard stock split, things are usually
going well. The business operations are profitable and growing, and the
shares are moving steadily upward. Such is almost never the case for the
company implementing a reverse split.
Pure and simple, reverse splits are facilitated to improve the
appearance of the company and its stock price. The company whose stock
is $5 appears more valuable than one whose stock is merely $1. But if
the company really believed in its future and wanted to reduce its
amount of outstanding shares, it would start to buy them from the
market.
Furthermore, the stock is now ripe for a secondary offering of more
shares by the company. For the pre-split shareholder, his percentage
ownership in the company will endure a magnified degree of dilution the
moment the new shares hit the market. The company's objective for the
share offering has yielded the desired capital, but the risk has been
transferred to the shareholders. It makes no monetary difference to the
company. |
