There have been several recent instances of companies completing a reverse stock split in order to decrease the number of shareholders the company has, allowing the company to de-list from its stock exchange. This has presented value opportunities in companies such as Phoenix Footwear Group (AMEX:PXG) (See Saj Karsan’s write-up here) and CoSince Communications (PINK:COSN) (See Andrew August’s write-up here). Unlike those cases, where the investor with fewer than 100 shares is redeemed by the company with cash at an inflated price, there are some instances where the company simply rounds the investor up.
Consider the case of China Architectural Engineering Inc (NASDAQ:CAEI), which in December 2010 announced it would complete a one-for-four reverse split in order to push up its trading price above the NASDAQ’s $1.00/share requirement. In the company’s filed Certificate of Amendment to its Certificate of Incorporation, the company stated:
Any fractions resulting from the Reverse Stock Split computation shall be rounded up to the next whole share.
Thus, any investor not owning a number of shares divisible by 4 would round up, possibly by 3 shares. Now, this isn’t going to make anyone wealthy, as these shares were trading for a fraction of a dollar, but it is an interesting way of completing a reverse stock split for the company, unlike PXG and COSN, which could conceivably have had to repurchase its shares at significant premiums. The difference here is that CAEI is not trying to go private and so the resultant number of shareholders is irrelevant.
Talk to Frank about Reverse Stock Splits
Author Disclosure: No Position
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