StemCells (STEM) new Proxy to affect a Reverse Stock Split
Long/Short Equity, Special Situations, Contrarian
Seeking Alpha Analyst Since 2009
The proxy is solicited and fixed the close of business on Wednesday, 5/11/11, as the record date for determining stockholders. There were 137,840,194 shares of common stock, outstanding on 5/11/11.
Proposal #5, approves an amendment to STEM’s certificate of incorporation to effect a reverse stock split of the issued and outstanding common stock and decrease the number of authorized shares of common stock to 75M within 4 months after the date stockholder approval for the reverse stock split is obtained.
- Effect a reverse stock split ofSTEM’s issued and outstanding common stock at any whole number ratio between, and inclusive of 1 for 7 and/or 1 for 11;
- Decrease the number of authorized shares of common stock to 75M within 4 months after the date stockholder approval for the Amendment is obtained, with the exact exchange ratio and timing of the Amendment (if at all) to be determined at the discretion of the Board of Directors;
STEM’s closing bid price of common stock has been below $1.00 per share since 1/19/11. On 3/3/11, STEM received a delisting determination letter from the NASDAQ Stock Market.
- STEM can regain compliance with the minimum bid price requirement and remain listed on the NASDAQ Global Market if the closing bid price of common stock were to reach $1.00 or higher for a minimum of ten consecutive trading days at any time prior to 8/30/11.
The Bottom Line: All other things being equal, a reverse stock split by a publicly traded company reduces the number of shares outstanding but (could) leave the market capitalization of the company the same, which increases the price per share of STEM’s stock. Put another way, after a reverse stock split, the enterprise value is spread over fewer shares and so the per share price of the stock will be higher.
- While no assurances can be given, a reverse stock split, at a whole number exchange ratio ranging from 1 for 7 (every seven shares outstanding would be combined into one share) to 1 for 11 (every eleven shares outstanding would be combined into one share), would result in an increase in the price per share, and thereby help meet the $1.00 per share minimum bid price requirement;
- By preserving its NASDAQ Global Market listing, STEM can continue to consider and pursue a wide range of future financing options to support our ongoing clinical development programs. A listing on a national securities exchange also has the potential to create better liquidity and reduce volatility for buying and selling shares of our stock, which benefits our current and future stockholders;
- The reverse stock split could enhance the appeal of common stock to the financial community, including institutional investors, and the general investing public. A number of institutional investors and investment funds are reluctant to invest in lower priced securities and that brokerage firms may be reluctant to recommend lower priced stock to their clients;
- The proposed reverse stock split carries with it several significant risks; for example, that the market price per share of common stock after the reverse will rise or remain constant in proportion to the reduction in the number of shares outstanding before the split;
- Checking the major ownership matrix; Black Rock owns 5.11% with total directors and officers owning 3.73% including CEO McGlynn with 1.36% of outstanding shares;
- A recent historical precedent exists, ASTM did the same thing …
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