Hartcourt Companies (fka HRCT)

[Investorman]

Those assumptions make a pretty big leap.

A reverse split always makes prior cash inflows (or purchases with shares) cheaper since it wipes out wealth. In theory, a reverse split would have no effect since the post split shares would be worth 20 times the pre-split shares. But, in practice, post reverse split shares tend to fall rapidly in value, reducing the market cap.

Simply put, your suppositions are correct. If you bought with 40 million shares today and then did a 20:1 reverse split, the stock price would probably fall quite a bit post split and so the true purchase price would be 2 million shares at whatever the new stock price settled at.

Using your scenario, it would be cheaper to buy with shares if you were going to do a reverse split since the company would be buying with shares they were going to devalue.

From a shareholders point of view it wouldn't matter much since the shares they own would also suffer the same drop in value. The people who would benefit would be those who bought after a reverse split and the price dropped.

This is just a not for real discussion since I don't think HRCT is going to do a reverse split.