Key Takeaways:
- Bed Bath & Beyond announced plans for a reverse stock split.
- The company is optimistic about a reverse split, but reverse stock splits signify a desperate financial crisis.
WISCONSIN (CoinChapter.com) — The Board of Directors from Bed Bath & Beyond Inc. (NASDAQ: BBBY) announced intentions for a reverse stock split, which sent shares plunging. However, the planned reverse split date has yet to be determined.
The current share price (see graph below) is not only at a yearly low but its lowest offering ever. Public trading began June 5th, 1992; at that time, the price was $1.07.
In a reverse stock split, each share that is still outstanding is divided into smaller portions. The Securities and Exchange Commission states that this action is typically performed to raise the share price.
Bed Bath & Beyond Optimistic About a Reverse Stock Split
Bed Bath & Beyond CEO Sue Gove stated in a press announcement, “Our proposal for a reverse stock split will enable us to continue rebuilding liquidity to execute our turnaround plans and better position the company financially.”
The company took action after successfully raising over $1 billion through a public equity offering. Equity offerings dilute existing shares by introducing new shares into the market.
The opposite result would result from a reverse stock split. According to a filing with the SEC, the proposal would reduce the number of currently outstanding shares.
Bed Bath & Beyond stated in the filing that the plan might also enhance investor perception of the company’s common shares because it will probably lead to a higher trading price.
According to the corporation, this could enhance broker interest, particularly among institutional investors and investment funds. In addition, according to the petition, a greater share price might also aid in reducing the stock’s volatility.
However, certain dangers are associated with the action, such as the possibility that a reverse stock split will not raise the common stock price. In addition, according to the SEC, markets also tend to perceive reverse stock splits adversely, which means that investors may lose money due to changes in trade prices following the split.
A Desperate Move?
Companies that go through reverse stock splits are frequently in some level of a financial crisis with poor recovery prospects; this could lead to investors selling and moving on.
At a special shareholder meeting later this year, holders of the company’s common shares as of the close of business on March 27th can vote on the plan. The special meeting’s date, time, and other specifics will be announced later, according to Bed Bath & Beyond.
The ratio of the planned split, which will vary from a one-for-five ratio to a one for 10, has yet to be decided by Bed Bath & Beyond.
The company’s true or intrinsic worth, or a shareholder’s proportionate ownership in the company, would not be impacted by the reverse stock split, according to Board Executives. Additionally, it won’t affect the company’s ongoing debts or business activities.
