15-9 Splits 3

15-9 Splits 3 - Yikes! My Stock's in Single Digits!...

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Yikes! My Stock's in Single Digits! Shocking, ain't it? Yesterday's Bull-Market Icons keep Hitting new Lows. Source: Fortune Magazine, 27 May 2002 There is something strange about Focal Communica- tions' stock chart. Very strange. No, it's not just that its shares recently traded at $3. That, as we all know, is hardly a mark of distinction these days. It's that a couple of years ago the chart shows FCOM trading at around $3,000! Come on, really? $3,000 to $3! Is that right? Actu- ally, yes and no. You see, Focal Communications, a competitive local-exchange carrier (CLEC) based in Chicago, has just pulled off a 35-to-1 reverse stock split. The stock was selling for pennies, and this was an attempt to boost the price by reducing the number of shares outstanding--in this case, by a factor of 35. But the split also had the effect of making Focal's split-adjusted high $3,000, instead of its actual trad- ing price of around $85. Sound wacky? Well, it's definitely not situation nor- mal--though one could ask, What is, these days? Nor is this kind of capital- structure engineering practiced only by small, obscure companies. AT&T is report- edly considering a reverse split when it completes the sale of its cable assets to Comcast. Ma Bell execs apparently fret that selling those properties will send its stock price down below $5. (T recently traded at $13.) A reverse split would pop it back up to double digits. Yes, it has come to this. We are at a moment in stock market history when corporate icons are contemplat- ing what many would consider desperate measures to boost their share prices. And the problem is hardly isolated to a handful of troubled companies. Some of the most notable names on the FORTUNE 500 now trade in the single digits--a fact that has sent a new wave of trauma through post- Sept. 11, post- recession, post-bubble Wall Street. Recent recruits to the sub-$10 club include heavy- weight techs and telcos: Oracle, Sun, EMC, Gateway, and Qwest. Throw in erstwhile highfliers like Ram- bus, E*Trade, Ciena, CMGI, and Inktomi. And it goes well beyond tech too. Other sectors of the econ- omy, from airlines (US Airways) to media (Gemstar- TV Guide) to insurance (Conseco) to engineering and construction (Foster-Wheeler), are represented. We're not even counting basket-case bankruptcies like Kmart and Bethlehem Steel. For many of the companies the fall has been so hard and so deep that it is hard to comprehend. Companies like Ask Jeeves, DoubleClick, and i2 weren't just hot stocks, they were supernovas, trading in the three figures not much longer than 24 months ago. Con- sider the mammoth collapse in the value the market assigned to them. InfoSpace, for instance, trades at about $1 today and has a market capitalization of some $275 million. At its peak in March of 2000, its stock closed as high as $130, giving the company a value of over $26 billion. CEO Naveen Jain once boasted this would be the first trillion-dollar-market- cap stock. Right. For others, the new third-class status is more a ques-
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This note was uploaded on 05/03/2010 for the course ACCT 202 taught by Professor Yang during the Spring '10 term at UPenn.

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15-9 Splits 3 - Yikes! My Stock's in Single Digits!...

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