Reverse Spit
>> Ericsson, Nortel reverse stock splits may prompt others
30/09/02
CommsDay Asia
The Swedish telecoms equipment vendor Ericsson is in discussions with the US NASDAQ stock exchange whereby it would become compliant with listing rules by hiking the number of shares in its American Depository Receipts. The NASDAQ requires such a move should the value of equity listed on the exchange remain below US$1 for more than 30 days. Ericsson’s shares actually fell below that level in late July.
Ericsson shares have lost more than 90% of their value since January this year and reverse stock splits are generally regarded by the market as as very bad news indeed.
However, Enskilda analyst Mats Nystrom proffered some support for the plan. “Nobody seriously expected that Ericsson would be delisted from NASDAQ, but it is positive news in the sense that they are reducing the uncertainty about what is going to happen,” he said.
Ericsson’s rival vendor, Nortel Networks of Canada announced plans for a reverse share split on Wednesday of last week at the same time as slashing its sales target for the second time in two months, this time to 15% below second-quarter’s $2.77 billion.
Pending shareholder approval, Nortel will now reduce its number of shares with what some analysts say may be a one-for-20 or one-for-40 consolidation.
“This is an extremely aggressive reverse stock split,” said Lehman Brothers analyst Steve Levy. “These are extreme times and they call for very extreme measures.” Nortel’s stock hit a 20-year-low in trading on the news.
Of course, in current trading conditions Ericsson and Nortel are not alone in their misery. The equipment vendor, Sonus Networks, facing its own NASDAQ delisting warning, said it is considering a reverse stock split, while even the mighty US carrier AT&T Corp. was forced to announce plans for a one-for-five reverse split to be introduced later this year.
Desperate times call for desperate measures sure enough, but neither analysts nor observers are particularly impressed by current industry tactics.
Joanna Makris, a senior telecoms analyst at Adams, Harkness & Hills commented, “Historically, reverse splits don’t work. The perception is that the stock is going to drift right back down to where it was.” <<
- Eric -
