# Reverse split



## Imrichbitch (Feb 2, 2017)

Hey all, so who sets the price after a reverse split? I see alot of examples and most are the typical if its 1$ before an 8:1 then is set at 8$. But say a company is extremely undervalued and assets and such equal a big number but its trading at a low dollar amount, could the new price set be a much bigger say 3 times the initial number to 24$ which would attract bigger investors, clean up outstanding and limit the amount of shorts?


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## Eclectic12 (Oct 20, 2010)

The market ... after the split or reverse split, the market will react as it sees fit.

If the company has to do a reverse split, likely the big players will be skeptical so I am doubting the per share number makes much a difference. Some small types like my Aunt might look one day see the $1 then look after where the $8 "must mean performance is better" but I doubt there are enough with this mistaken understanding to move the market.


Cheers


*PS*

Management may decide that a 10:1 factor gives them more safety in meeting the exchange listing requirements versus say going with 5:1 then potentially having to do another reverse split. Reverse splits are generally seen as a bad thing that is a sign of problems with the company.

Multiple reverse splits in a short time period are probably going to be seen as large red flags. :eek2:


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## Imrichbitch (Feb 2, 2017)

So im in the DRYS fiasco. And yes ive done all the research on this company and know how sketchy it is so dont judge. But say today closes at .60, rs 4:1= 2.40. With all there assets vs debt shows the company pps is worth more than the actual. Again yes i know its DRYS and i dont doubt itll be back to 1$ in a week but can the market be manipluated into a range to keep shorts out and attract bigger investors. 

I understand when you say "the market" will decide but i mean is there someone like a mediator ( someone who doesnt pick side but just sees the evaluation ) of the company.


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## james4beach (Nov 15, 2012)

Split or reverse split have no effect on "valuation". The valuation does not change as a result since the number of shares changes at the same time as the share price.

Splits are just a cosmetic thing used by companies to keep the trading price within a range that investors expect and are comfortable with.

Nortel is an example of a stock that reverse split (as much as 10:1) in an effort to keep itself from looking like a penny stock, since a very low share price looked bad. The reverse split can help sucker in some more investors who mistakenly think that the company's situation has improved.


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## Eclectic12 (Oct 20, 2010)

LOL ... I'd have to know what DRYS was, what the fiasco was and what exchange it was ... even if I wanted to judge.

I haven't investigated but the place there used to be something like what you are talking about is the TSX Venture exchange. Where the bid are put out to the exchange without interference, I am not sure how it would be manipulated.

Then too, even if it was manipulated, are any of the big institutional investors going to dive in based on share price without doing their own research?
Whether it's the old number or the consolidated higher share price number, the numbers will be the numbers for whomever is investigating it. 

Others who have a better idea of what drives the shorts market may decide to comment on keeping the shorts out.


As for the "all there assets vs debt shows the company pps is worth more than the actual", I've owned stock that this was true for. Whether the market paid attention or valued it appropriately to trade at different levels depended on a lot of other factors.


Cheers


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## Oldroe (Sep 18, 2009)

maybe if lay out your reasons we might all get pumped up and buy


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## Imrichbitch (Feb 2, 2017)

There a tainted company and have done 4 reverse splits over the the past year and another 4:1 was just announced. I see a way higher evaluation with assets only, the CEO has a terrible track record. I wouldnt suggest anyone buy anytime soon but do some research maybe youll see different. 

I think the 4:1 is pre market tomorrow but with my evaluation and the way this company is run it may be a ploy to make it either a huge bounce up or just another take from shareholders as they are know to do. Price is .64 close today, feel as tho it would be a big take if bought in and it was set to bounce or could just be handing him more of my money and its going to just plummet due to its high volatility.

We will see what happens tomorrow ill be disapointed in both outcomes haha if it spikes or if it drops.


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## TomB19 (Sep 24, 2015)

I worked at a company that reverse split 11:1.

The CEO took a big bonus and there was wide spread praise that he "got the share price back up".

No exaggeration: it was a milestone life event for me and I have been skeptical of the ability of people to reason ever since.

In fact, it's the reason I'm in the markets. I'm not the smartest guy and I know there are plenty of wolves waiting to eat me but there are also babies delighted to give away their candy.


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## Fraser19 (Aug 23, 2013)

I checked out there website,
In 2017 there were four share offerings for about 200m each.
Two reverse splits this year.
YTD return of %97.9.
That is one weird investment choice. However based off the questions you asked, Specifically who "chooses the price". This is not investing. It is gambling.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Split or reverse split have no effect on "valuation". The valuation does not change as a result since the number of shares changes at the same time as the share price.
> 
> Splits are just a cosmetic thing used by companies to keep the trading price within a range that investors expect and are comfortable with.
> 
> Nortel is an example of a stock that reverse split (as much as 10:1) in an effort to keep itself from looking like a penny stock, since a very low share price looked bad. The reverse split can help sucker in some more investors who mistakenly think that the company's situation has improved.




it's true that reverse splits don't affect valuation of a company, it's true the number of shares outstanding changes as the split occurs, so all is kept even.

but i don't quite agree with the rest of jas4's remarks. Companies don't reverse split their shares for cosmetic reasons. Those i've seen were forced to reverse split by the listing requirements of their respective exchanges. 

nortel, for example, was forced by the NYSE. I believe that pre-reverse split NT had fallen into the $1 range?

perhaps others on here would have details. Myself i'm not interested in reverse splits per se; however i have observed that a company trailing clouds of former grandeur like nortel will often be given fairly long extensions of time, during which the fallen angel is supposed to repair itself & gets its share price back up to the exchange's minimum listing threshhold.

a less prestigious company will get shown the door quite a bit faster.

once tossed off the TSX or the NYSE, shares then go to the pink sheets.


.


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## Imrichbitch (Feb 2, 2017)

Fraser19 said:


> I checked out there website,
> In 2017 there were four share offerings for about 200m each.
> Two reverse splits this year.
> YTD return of %97.9.
> That is one weird investment choice. However based off the questions you asked, Specifically who "chooses the price". This is not investing. It is gambling.


Yes it was a full on gamble, i was prepared to loose what i invested on this one.


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## TomB16 (Jun 8, 2014)

humble_pie said:


> but i don't quite agree with the rest of jas4's remarks. Companies don't reverse split their shares for cosmetic reasons. Those i've seen were forced to reverse split by the listing requirements of their respective exchanges.


That's exactly what happened at my former employer.





humble_pie said:


> perhaps others on here would have details. Myself i'm not interested in reverse splits per se; however i have observed that a company trailing clouds of former grandeur like nortel will often be given fairly long extensions of time, during which the fallen angel is supposed to repair itself & gets its share price back up to the exchange's minimum listing threshhold.
> 
> a less prestigious company will get shown the door quite a bit faster.


My former employer was below $2 on the TSE for a few years. Their low was $0.18.

We knew we would eventually have to reckon with the exchange. I was amazed they could slide for so long. They had some prestige, exactly as you wrote, so I'm sure that's why the exchange rules were overlooked for so long.


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## james4beach (Nov 15, 2012)

humble_pie said:


> nortel, for example, was forced by the NYSE. I believe that pre-reverse split NT had fallen into the $1 range?
> 
> perhaps others on here would have details. Myself i'm not interested in reverse splits per se; however i have observed that a company trailing clouds of former grandeur like nortel will often be given fairly long extensions of time, during which the fallen angel is supposed to repair itself & gets its share price back up to the exchange's minimum listing threshhold.
> 
> ...


Good point. There are other things that make the companies nervous ... getting dropped out of indexes is probably a big one. Losing margin eligibility. e.g. a TSX listed stock above $3 might have 50% margin requirement but dropping below $3 (by IIROC guidelines) makes the margin requirement go up to 100%

Bombardier is an example of a stock flirting with this kind of disaster. At the start of 2015, it fell below $3. Not at all a coincidence, notice it started getting dumped on high volume at that point, probably as margin calls came in and required liquidation, driving the price down further (this is at the point it lost margin eligibility).

BBD.B is still weighted #88 in the TSX Composite (not bad ... out of 253 constituents). One requirement for eligibility in the index is a share price above $1.00. If it becomes a penny stock, every fund will dump BBD.B. And once that happens, BBD.B will no longer be able to raise capital by issuing equity.

So I could see BBD.B trying to reverse split


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## OptsyEagle (Nov 29, 2009)

Imrichbitch said:


> the CEO has a terrible track record.


It's not that the CEO has a terrible track record. It is that the CEO is a crook and that record is quite consistent. What he does is get investors to invest their money into his company. This is a very cyclical industry. When the company falls on hard times he cherry picks the best assets by buying them at a much reduced price and moving them to his personal company, leaving the money loosing ones with Dryships. All along he pays himself high salaries and big bonuses. Since this causes the companies stock to go down even more, he eventually needs to do a reverse split of the stock so that new investors continue to play this game. 

This industry is fairly unregulated. This company is probably domiciled in Monaco and of course he works out of Greece and his ships and rigs roam the planet with almost no governing body to protect shareholders. You will never make any money on Dryships...but the CEO keeps getting richer and richer. Everything I have said is what you can easily see in the past filings and news releases. With a guy like this, I wouldn't put actions like "skimming money out of the till" past his ethical standards either. I am sure he has even thought of a few that I can't even imagine. He's a crook and you will never make money from a company run by a crook. Crooks are too greedy to let someone else get at the money that they will see first. They are born that way. They can't help it.

The above is just my opinion.


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## hboy54 (Sep 16, 2016)

james4beach said:


> So I could see BBD.B trying to reverse split


They were actually about one board meeting away from doing a reverse split a year or so ago when the SP was under $1 for a quarter of so, but backed out when it recovered sharply.

Hboy54


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> it's true that reverse splits don't affect valuation of a company, it's true the number of shares outstanding changes as the split occurs, so all is kept even.
> 
> but i don't quite agree with the rest of jas4's remarks. Companies don't reverse split their shares for cosmetic reasons. Those i've seen were forced to reverse split by the listing requirements of their respective exchanges.
> 
> ...


That's what I recalled ... but with others on the TSX not doing reverse splits while being around $0.25 and not finding any references to the exchange requiring it, I was doubting my memory. I completely forgot about the US listings. :wink:

When I almost bought, Nortel was trading for $0.77 where the lowest I can recall was $0.70 a share. Unfortunately for me, a co-worker who played hockey with some higher ups made me nervous so that I did more research. I ended up buying for $3 then selling most for about $12 and the remainder for about $8. 

I had stopped following Nortel when the reverse split happened. The reason I knew about it was my aunt commented on how Nortel was "turning it around" based on the higher share price, after the reverse split. No matter how I tried to explain that the higher price was mainly due to fewer shares, she remained confident that Nortel's share price had jumped dramatically.


Cheers


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## Eclectic12 (Oct 20, 2010)

TomB16 said:


> ... My former employer was below $2 on the TSE for a few years. Their low was $0.18.
> 
> We knew we would eventually have to reckon with the exchange. I was amazed they could slide for so long. They had some prestige, exactly as you wrote, so I'm sure that's why the exchange rules were overlooked for so long.


If it was the TSX ... then I don't think it is the exchange rules ... or maybe it's that different sectors on the TSX have different rules. I know of a mining company that's spent at least the last nine years on the TSX at under $1. There doesn't seem to be any pressure from the TSX to do a reverse split.

Nortel likely didn't have any pressure from the TSX either but where the US exchanges forced a reverse split, I would think that it wouldn't look good to have the US listing trading for $25 or so while the TSX listing traded for $2.50 a share.


It would seem a lot depends on what management anticipates the market reaction will be to the reverse split.


I haven't looked into it in detail as for the stocks I have bought, there have been a ton more splits than reverse splits (Nortel is not one of them as I had sold out long before the reverse split happened).


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Good point. There are other things that make the companies nervous ... getting dropped out of indexes is probably a big one. Losing margin eligibility. e.g. a TSX listed stock above $3 might have 50% margin requirement but dropping below $3 (by IIROC guidelines) makes the margin requirement go up to 100% ...


Good point ... that's another layer that would be in the "do or do not do" a reverse split.


Cheers


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## humble_pie (Jun 7, 2009)

TomB16 said:


> That's exactly what happened at my former employer.
> 
> My former employer was below $2 on the TSE for a few years. Their low was $0.18.
> 
> We knew we would eventually have to reckon with the exchange. I was amazed they could slide for so long. They had some prestige, exactly as you wrote, so I'm sure that's why the exchange rules were overlooked for so long.




exactly, your employer must have been a fallen angel trailing clouds of glory, so the exchanges trod lightly.

bombardier will be another where they'll tread very lightly indeed. Save & except BBD said today that it's sold its european rail division to siemens in an operation they're calling a merger. This will likely postpone penny stock doomsday for the ailing aircraft manufacturer.

what's left for bombardier? it's an aerospace mostly betting on the C series. Ottawa & quebec hold big share ownership positions that are betting on BBD's future with complex loans. It's like the 2 gummints paid something like $50 billion each to buy gigantic call contracts on BBD that will expire some time in the middle of the next decade.


.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> exactly, your employer must have been a fallen angel trailing clouds of glory, so the exchanges trod lightly.


It will be interesting if this was confirmed or not by TomB16.

In the meantime, it seems that if the company in question was only listed on the TSX and did not have things like index listings that added requirements - then AFAICT, it would be a company decision only.


Cheers


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