Reverse Split 101
Reasons a R/S are bad
a.) Companies in the OTC historically R/S when they have maxed out their authorized, or have serial diluted the Company to a point where a R/S is necessary to continue dilution. These instances typically wipe out shareholder value. This is the primary reason why most OTC investors perceive R/S's as something bad. Mainly because they have almost always been bad for investors.
b.) OTC traders are simply more attracted to a $0.60 stock versus a $6.00 stock. The perception is more gain can be had from the lower price.
Reasons a R/S are good.
a.) Achieves a higher share price which attracts more sophisticated investors. Sophisticated investors would be more interested in a $6.00 stock versus a $0.60 stock.
b.) Lowers shares structure which increase EPS making the stock look more attractive to sophisticated investors (almost same mentality, but opposite of the OTC trader).
The reality of of a R/S.
A reverse split does nothing to shareholder value. It is simply a mathematical adjustment to what already exists. What Management does afterwards is what makes or breaks a R/S for shareholder value.
Whether a stock drops or not after a R/S is simply the perception among the investors in the stock based on those investors experiences. The perception of a R/S is ultimately dependent upon individual investor sophistication.
I have no idea what management is going to decide ultimately.
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