15-8 Splits 2

15-8 Splits 2 - Foundering Software Companies try Reverse...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Foundering Software Companies try Reverse Splits to retain Listing Source: Wall Street Journal, 2 October 2002 In November 2000 shareholders of i2 Technologies Inc. endorsed the software company's plan to split its stock 2-for-1 and boost the number of authorized shares to two billion. Soon they may be asked to do the exact opposite. The Dallas company, whose shares are foundering below $1, is considering a reverse stock split that would reduce its shares outstanding and keep its stock trading on the Nasdaq market. A decision hasn't been reached and any such move would require shareholder approval. The company underwent three 2-for-1 splits from 1998 to 2000 before its business unraveled and its supernova stock burnt out. It has 431 million shares outstanding and a market value of about $240 mil- lion. Its stock, which was at $220 in March 2000, recently fell to 56 cents a share. A reverse split reduces the number of shares out- standing and artificially raises the share price, but doesn't change a company's fundamentals or market capitalization. For example, if a company with 10 million shares selling at $1 apiece executes a 1-for-10 reverse split, it would end up with one million shares selling for $10 each. The value of the company re- mains $10 million. Reverse splits are typically associated with founder- ing, small companies desperate to remain listed on Nasdaq or the New York Stock Exchange. They are usually frowned upon by investors because they often backfire. "When a company makes that kind of switch they are telling shareholders, `We're pushing the price up be- cause we don't have confidence it's going to grow naturally,"' says David Ikenberry, finance professor at
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

15-8 Splits 2 - Foundering Software Companies try Reverse...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online