Replies to post #170156 on Bebida Beverage Company (BBDA)

[Whiplash_Investor]

A R/S is definitely not always a bad thing. If BBDA performs say a R/S of 1 for 10 shares, and reported $0.01 per share in earnings, the adjusted EPS would then be $0.10. This is similar to the market cap. If investor valuation accounts for the market cap and a reverse split occurs, the market cap should remain the same and hold steady. As you said, initially the share price could drop but should recover based on a solid company.

Later on down the road the company might reach a point where a normal split needs to happen to bring the share price to a lower level for investors.

I honestly do not think that a R/S is going to happen with BBDA based on the intentions to buy back some of the shares. I could be wrong but either way I don't worry about the outcome unless I have something to worry about. Everything I have seen is positive for BBDA.

I've said all along that to get the share structure down, an RS is the cheapest and best way for BBDA. BW says he wants to do a buyback because he feels it's the right thing to do, but a buyback to get to 800M shares is a costly proposition.

Let's assume he buys back 1.5B shares from here to get to 800M at an average price of $.02 (using that price because many here believe it will exceed that in the coming year). $.02 X 1.5B is the cost to the company (over the 18 to 24 mos he mentioned in the interview), your company, a cost to earnings and cash flow of $30M. Earnings per share is what truly drives share price because it has both components, earnings and the total qty of shares out. Raise the first and lower the second increases EPS.

An RS of 1:3 could get the OS to 759M shares for the cost of filing the paperwork, not $30M.

If it were your business (and it is, as you are shareholders), wouldn't you rather add $30M to earnings than spend it buy buying back? $30M / 759M shares = $.04/share of increased earnings. At a P/E multiple of 12 to arrive at a fair PPS, the additional value added to that PPS is 12 X $.04 or $.48/sh.

That's $.48 additional to what it would be selling at using the buyback method to accomplish the same thing. Yes, your total share qty would drop to 1/3 that of today, but isn't $.48 more per share worth it? Do your own math.

Something to think about and one day when BW gets out from under all the crises, he'll notice the same thing and probably come to the same conclusion. Now if he schedules the RS all around a move to the NASDAQ or something and does a 1:5 or a 1:10 split to get share price above $4/sh to qualify (lowering OS even more), you won't even feel it in the few days after that RS's often tank stocks (all on emotion). That negative emotion will get trumped by all the positive emotion of institutional holders buying to get in on the ground floor.

Think about it.