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Conference nyoss1::market_investing

Title:Market Investing
Moderator:2155::michaud
Created:Thu Jan 23 1992
Last Modified:Thu Jun 05 1997
Last Successful Update:Fri Jun 06 1997
Number of topics:1060
Total number of notes:10477

869.0. "Pros and cons of reverse split." by STAR::HUSSAIN () Wed May 31 1995 15:18

    Is there anything to be wary about when a company is doing a reverse
    split?
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869.1NEWVAX::BUCHMANUNIX refugee in a VMS worldWed May 31 1995 15:5312
    I'd be interested to hear this answer, too. A friend of mine has a
    moderate amount of Rational Software stock; they specialize in object
    oriented software, and had a nice jump from 1.5 a year ago to 3.5
    recently. My friend got in around 2.5, but now he is uneasy because the
    company is reverse-splitting 3 for 1, to around 10.5. I don't think
    there is anything inherently wrong with such a move, but one has to
    wonder why a company goes to the trouble to do this. Do they want their
    stock to look more attractive to potential buyers? Is there some
    advantage to having a company with 10,000,000 shares outstanding
    instead of 30,000,000? I don't know.
    				Jim B>
    
869.2NETRIX::michaudJeff Michaud, That GroupWed May 31 1995 16:057
	See also topic 68 which does bring up reverse splits.

	The main problem is that you could end up with an odd lot, which
	may cost more to sell if your broker charges more for odd lot trades.
	Plus odd lots have to be combined with other odd lots I believe in
	order to get executed on the trading floor so you may get a slower
	execution of the trade.
869.3Reverse Split=investor leavesPOBOX::CORSONHigher, and a bit more to the rightWed May 31 1995 16:3115
    
    	The main curse with reverse splits is percentage declines in the
    value of your holdings.
    
    	A $4.00 stock will not have the big declines a $20 stock would
    on bad news right off the bat. While this sounds somewhat ridiculous,
    10% being $.40 compared to $2.00, my experience with reverse splits
    (Storage Tech and Navistar come immediately to mind) has not been
    good.
    
    	Probably time to sell and reinvest in a company that is going to
    grow its equity, not concentrate it.
    
    		the Greyhawk
    
869.4Often a bad signEVMS::HALLYBFish have no concept of fireWed May 31 1995 19:0914
    There are exchange rules about the price a stock must maintain in order
    to continue to be listed. Also most brokers have rules about the
    minimum price a stock must have in order to be bought on margin.
    
    To me, a reverse split means the stock has declined so far that the
    company needs to implode in order to maintain eligibilities listed
    above. Which usually means it's been on the decline for some time and
    some distance, and bankruptcy is not far behind.
    
    I remember taking a flyer on 10,000 shares of Softguard systems. It
    floundered, lost its NASDAQ listing, reverse-split 10-for-1, regained
    its NASDAQ listing, then went bankrupt.
    
      John