posted
What is the importance of R/S stocks? How does one play R/S's? Does anyone have any comments, imput, suggestions? Are these stocks extremely volatile? This is the first post I do to this board, and I am curious. Any help would be greatly appreciated...
Thanks, Sharkone
-------------------- No matter how thin you slice it it's still baloney... Posts: 402 | From: Miami, Florida | Registered: Jan 2005
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Hey shark here is some material you can read that might help you from these boards
#1By: glassman OK i've been looking for a decent article to put here for you and can't find one...
here's ONE WAY they can run the deal in micro penny land...
this doesn't always apply BUT..... this how a less than honorable company MIGHT operate....
insiders of a co. will "exchange" their common shares for PREFERRED shares....
the insiders maintain control of the comapany AND usually have conversion rights attached to the prefered shares that allow them to "exchange" the prefered back into common shares...
the company then proceeds to RS the common shares only... this is often "painted" with a flourish, making it sound like they are doing it for the benefit of the shareholders.....
so now there are 1/100th the amount of COMMON shares...the PPS was increased 100X to reflect this.
the company now begins to sell more shares into the market until they once again have the same number of shares in the marketplace that they had before the RS... that is what drives the PPS back down.....
the INSIDERS still have the EXACT SAME amount of PREFERED shares that they always had.... the insiders holdings are never touched by the RS....UNLESS they convert them to common shares and sell them when the PPS is high(say right after the RS).... ------------------------------------------------- #2 http://www.allstocks.com/stockmessageboard/cgi-bin/ultimatebb.cgi/ubb/get_topic/f/10/t/000113.html? -------------------------------------------------
#3Using A Reverse Stock Split To Salvage Or Strategize
Surviving Reverse Stock Splits By Eriq Gardner Upside - May 2001, Pgs. 122-126
The worst-case scenario. A reverse stock split often tolls a company’s end, yet companies hoping to forestall disaster have relatively few weapons with which to fight back. A few can repurchase their own stock; many turn to reverse stock splits. Often the trigger for a reverse split is a one-page fax from Nasdaq officials, telling the company it has 90 days to prop up the swooning share price, or else it will be delisted. Delisting of a company’s shares occurs when (and because) its share price falls below the dreaded one-dollar level. That fate means, among other things, that a market will no longer exist for the stock. In this period of disappearing dot.coms, some 257 companies, or more than 5% of the Nasdaq listings, have suffered that ignominious end. Like the Pets.com mascot, the majority of the delistees have faded into memories.
Repurchase if you can. If the company has enough cash—and most that face delisting do not—it can create an artificial demand for its stock by repurchasing shares, in effect becoming its own marketmaker. Analysts generally regard share repurchases favorably when healthy companies undertake them. By reducing the number of shares outstanding, the per-share earnings increase and so generally does the share price. Many investors look favorably on share repurchases as an untaxed dividend, though others feel that cash could be more wisely used by investing in the company. TheStreet.com used a buyback strategy to keep its shares listed, repurchasing $10 million in December 2000.
A portent of disaster. Lacking cash, the company’s remaining choice is usually a reverse split. Unlike a forward split, where one share becomes two or three, the reverse split combines 10, 20, or even 50 shares into one. Forward splits generally signal good news about a company to the market. Boards undertake them to return share price to a more favorable trading range. Reverse splits are almost always seen as a portent of disaster, taken by investors as a signal to abandon the stock while it is still afloat. Neither split affects a stock’s market capitalization; the benefits of either—assuming any follow—are purely psychological. In the final analysis, reverse splits just painfully forestall the inevitable. As share price continues to decline, the company eventually will be delisted for failure to meet the public float requirement. For example, PlanetRx.com, which did a 8-for-1 reverse split on December 14, 2000, was delisted two weeks later. Eglobe, which swapped 47-for-10 on November 13, 2000, disappeared from the Nasdaq nine days later.
Useful splitting. The reverse split is not always just a futile attempt to tread water. One little known use of the strategy is to prepare a company’s stock for an IPO when insiders hold a majority of shares. Here, a reverse split is perceived as a trade-off for the dilution of privately held shares. The reverse split is also infrequently used to divide a company and to facilitate its return to private ownership. This, however, is a tricky tactic, since the SEC frowns upon any maneuver that is made primarily to reduce the number of shareholders in a public company.
-------------------- ^..^ Posts: 2980 | From: New York | Registered: Jan 2004
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