**OT** Anyone holding sub $1.00 NASDAQ stocks?
Evictions Loom for Nasdaq Stocks
January 16, 2001
Web posted at: 2:03 p.m. EST (1903 GMT)
by Cory Johnson
(IDG) -- Of all the documents Jana
Wilson fed into the paper shredder earlier
this month, one was destroyed with
particular satisfaction. It was a one-page
fax from the Nasdaq stock exchange,
dated Nov. 9, informing the Garden.com (GDEN) chief financial officer that her
company would be delisted - that is, removed from the Nasdaq.
"When you're told you're being kicked off, it kind of bums you out," said Wilson,
as she packed her office things into boxes, preparing for Garden.com's
liquidation. "I was glad to get rid of that letter - I really don't want it haunting me
any further."
But for an alarming array of new-economy companies, the nightmare is just
beginning. An investigation by The Standard has revealed that hundreds of
companies no longer meet the Nasdaq's basic requirements for listing on the
exchange, falling into jeopardy of being delisted. At imminent risk: the survival of
more than 5 percent of the stocks on the Nasdaq national market.
Nasdaq officials decline to acknowledge
which, or even how many, member
companies have received such warnings. But
The Standard asked FactSet Data Systems to
compile a list of companies that no longer
meet the Nasdaq's standards. The result is
startling. According to FactSet, 257
companies have fallen below the Nasdaq's
listing standards in the last six weeks alone.
But this may be just the tip of the iceberg.
Another study by San Francisco investment
bank Epoch Partners reveals that 38 more
companies are just days away from such a
fate.
The Nasdaq's listing standards can be arcane,
and the secretive nature of the delisting
process makes it even more confounding.
Struggling companies are not automatically
kicked off the exchange. But when
Nasdaq-listed companies fail to meet two
complicated sets of criteria, they can be
delisted.
This was far from the minds of
new-economy companies as they rushed to
file IPOs; in recent years, the Nasdaq
welcomed these young firms with open arms.
But as the stock market has melted down over
the last few months, many of these
companies have seen their share prices
tumble. And as they burned through IPO
cash, they had little left by way of tangible
assets. The upshot: As the market fell, the
stocks dipped below the Nasdaq's minimums.
Of all the complicated requirements, the most
damning is the $1 rule. "If a company's share
price is below $1 for 30 consecutive business
days," says Nasdaq spokesman Wayne Lee,
"we will properly notify the company that it is
not in compliance."
That's the dreaded fax. Essentially, it's like
getting kicked out of an apartment; first comes the eviction notice, then the
actual eviction follows 90 trading days later, though that can be delayed by
appeals and hearings.
To stave off getting the boot, a company must hoist its stock price back above
$1 and keep it there for 10 days. And it has only 90 days to meet this hurdle.
This struggle happens behind closed doors: The Nasdaq doesn't let the public
know when these notices go out, and the firms aren't terribly forthcoming either.
The Standard called hundreds of companies; several acknowledged receiving a
warning letter from Nasdaq. But the response of Tickets.com (TIXX) was more
typical: "Discussions we may or may not have had with Nasdaq are between the
two entities," said investor relations representative Randall Oliver. "There is no
obligation to disclose the content of any discussions that may have taken place."
Since these warnings can preclude an actual delisting, the Nasdaq insists the
warnings are a private matter. "The Nasdaq is entrusted with the authority to
maintain the quality and the public confidence in the market," says Lee. "Do you
have any idea what would happen to public confidence if we were to print a list
like this? Put yourself in the shoes of an investor in these stocks. This could do
serious damage to these share prices."
The big board picture
Although 5 percent is a substantial chunk of the Nasdaq, it's not unprecedented.
Over the last decade, the Nasdaq has lost, on average, 12.7 percent of its listings
each year. (The Nasdaq's official tally is not limited to delistings; it also includes
companies that merge or are bought out.) In recent years, however, the Nasdaq
has been able to replenish itself with a new crop of IPOs. But given the
overwhelming weakness in the current market, observers say it's unlikely that
the IPO market will come back in any significant way.
"This was an overinvestment story," says John Skeen, director of portfolio
strategy at Banc of America Securities. "There was too much money chasing the
opportunity. There were too many IPOs. There were too many companies that
shouldn't have been public, and now the market is taking care of that."
But one place where the rout isn't on is the venerable New York Stock
Exchange. Critics have long charged the NYSE with being stodgy, and its listing
standards as too lofty. But the current market environment has the NYSE looking
like a calm port in the storm.
"The problem is that when these companies drop below the listing standard,
sometimes they're just too far gone to pull up," says Thomas Rathjen, the New
York Stock Exchange's western division VP and a former executive at the
Nasdaq. "So yes, getting into the NYSE is a pretty significant hill to climb, but
once you're up there, well, you're going to have fewer companies fail on the
NYSE than you would on Nasdaq."
Rathjen, whose job is to sell the NYSE to large technology companies, says that
the rampant Nasdaq delisting is making his job a lot easier. "I think we are
perceived by many as a safe haven during times of trouble," he adds. "So I think
there is a higher level of receptivity to our story these days."
No way out
So how can companies fight delisting? The reverse stock split is the most
dramatic, immediate method to fight delisting. PlanetRx.com (PLRX) tried it. On
Dec. 1, the company said it would convert every eight shares into one share.
The effect should have increased the share price eightfold. But by the time
shareholders approved the deal, the stock was trading at 13 cents. When the
reverse split took effect, the stock instantly dropped from $1 to 53 cents.
PlanetRx scheduled a hearing with the Nasdaq to appeal the delisting, but
announced in mid-January that it wouldn't even show up for the hearing - the
company had run out of defenses and opted not to press its case.
Companies that are kicked off the Nasdaq national market have a number of
options, few of them good. According to analysts, the bylaws of most mutual
funds and hedge funds do not permit ownership of stocks not listed on the major
exchanges. So there are few buyers for delisted stocks.
Those companies can join the OTC Bulletin Board, a lesser exchange set up by
the National Association of Securities Dealers, where penny stocks abound.
Failing that, they can even fall to the Pink Sheets, a thinly traded exchange where
share prices are quoted on printed, pink sheets distributed among certain Wall
Street firms.
Many new-economy companies might try to make it on their own as privately
held concerns. And over time, these damaged goods can reapply for a Nasdaq
listing. But it's rare that such companies regain the trust of the Street. Another
strategy to fight delisting is for a company to buy back its shares in the market,
hoping to shore up the price. But that assumes companies have a pile of cash
lying around. If that cash is spent buying back shares, it's not available to pay
employees, develop new products, pay salespeople or keep the business running.
Of course, many of these businesses are barely running as it is. The fact that the
stocks are even worth pennies is a wonder to many on Wall Street. "The music
has stopped, but people are still dancing," says J. Carlo Cannell, of the San
Francisco-based Cannell Capital hedge fund. Cannell is an expert in small stocks,
and expects few of these stocks to survive. "The fact that these things have any
market cap at all is what's crazy - they're in their grave, the earth has been
thrown on top of them, and yet someone still thinks the stock is worth a few
pennies. They won't for long."
cnn.com
steve |
