Simple Calculation... If you want to know how the IPO will affect you, here's the formula:
GL = (PIPO / SPLIT) - CPS
where:
GL is the gain or loss per current share.
PIPO is the projected price per share of the IPO.
SPLIT is the reverse split factor. E.g., it would be "20" for 20:1.
CPS is your average cost per share for what you now own.
Example 1: If the IPO is priced at $15 and they do a 10:1 split, and your average acquisition cost was 15 cents (.15), then you will see a gain (GL) of 1.35 cents per current share. [Market Valuation = $189 million]
Example 2: If the IPO is priced at $10 and they do a 30:1 split, and your average acquisition cost was 28 cents (.28), then you will see a gain (GL) of 5 cents per current share. [Market Valuation = $56 million]
Example 3: If the IPO is priced at $6 and they do a 40:1 split, and your average acquisition cost was 35 cents (.35), then you will see a loss of 20 cents per current share. [Market Valuation = $34.5 million] NOTE: This isn't realistic because the valuation does not meet NASDAQ thresholds.
As you can tell, the outcomes vary considerably based on your situation and the IPO variables. There are different ways to construct this -- for example, you could replace PIPO with the projected percentage ownership of the IPO shares. But I thought this was the easiest and most useful way to look at it.
In theory, the investment bank will try to arrive at a fair market valuation, and they will adjust the other variables to accommodate. The ratio of PIPO / SPLIT is what matters, but they will want to adjust PIPO to make the entry price attractive, given the risk. That will then drive SPLIT. I suspect this has already been determined, but they aren't releasing that information yet.
