Down But Not Out: Properly Implementing A Reverse Stock Split And Leveraging The Opportunity It Creates

Reverse stock splits are widely viewed as a cosmetic fix by public companies to raise the price of common shares. Reverse stock splits are generally thought to be utilized for two principal purposes: (1) to remain listed on an exchange; or (2) to entice greater breadth of stock ownership, usually targeted at institution al investors.

Furthermore, reverse stock splits are viewed by many as a late-in-the-game effort by under-performing and/or out-of-favor companies to reverse their fortunes without improving the underlying business. Yet, empirical data shows that some companies are able to implement a reverse stock split and, after that inflection point, ultimately thrive. This intriguing point led us to look more closely at why some companies succeed post-reverse stock split while others fail.