Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Microcap & Penny Stocks : PanAmerican BanCorp (PABN) Info and Positive Thoughts Only -- Ignore unavailable to you. Want to Upgrade?

To: jhild who wrote (791)	1/12/1999 4:29:00 PM
From: Gordon Gekko	Read Replies (1) \| Respond to of 1129

John, You are wrong in your assumption about a reverse split and a merger being the same. The following example is why. Company A Net Worth = $50M Outstanding Shares = 10M Currently trading at 2X book value or $10 Market Capitalization = $100M Company B Net Worth = $10M Outstanding Shares = 100M Currently trading at 2X book value or $.20 Market Capitalization = $20M Company "A" offers to merge with company "B". Company "A" gives company "B" a revised net worth of $20M based on projections of growth and market conditions. Revised Company A & B Net Worth = $70M (existing $50M + Company B's $20M) Existing Shares = 10M New shares issued to Company "B" = 4M (Company "B" is contributing 28.6% of the value of the new company.) Total Outstanding Shares = 14M Book Value = $5 Trading price = $10 (assumes market maintains the Price/Book of 2X) The effective conversion ratio for Company "B" would be 1:25. The effective price per share for the merger is 40 cents. In a reverse split you have a company increasing the price of it's shares, but not increasing the net worth as well. A reverse adds nothing to the existing shareholder. It only reduces leverage. A merger may have the same mechanics as a reverse split, but it adds something to the worth of the company. The old company would have physical ties to the new company. Another benefit is the old company's trading pattern and range. There would be documented stock prices associated with that given company's value and future expectations. When a company reverse splits it has nothing to substantiate the higher stock price even though the value is still the same, but in a merger we would be attaching ourselves to a more established company and subsequent stability. GG