Windstream Holdings, Inc. WINrecently completed its 1-for-5 reverse stock split process to pull up its sagging share price.
In the company’s annual meeting held on May 21, stockholders approved the reverse split decision. Consequently, the amount of common stock fell from 375 million shares to 75 million and preferred stock dropped from 33.
Strategic Rationale
The company believes that this strategic move will raise the share price and hence attract more investors. It took this decision in a bid to revive its falling share price, possibly to avoid the general impression of being a penny stock.
Additionally, the company also took a particular policy in consideration, which restricts institutional investors from buying stocks priced below a certain floor price. For this reason, customers are discouraged by brokers from buying such stocks. The higher share price resulting from the reverse stock split will alleviate this concern to some extent and bring the stock to the attention of potential investors.
Further, the SEC guidelines mandate a listed company to maintain a minimum share price of $1.00. If the share price of the company falls below the $1.00 floor price for 30 consecutive days, it risks delisting. The current price trend of Windstream suggests that this may be a major reason behind the reverse stock split move.
Also, in the last quarter, the company reported a significant net loss of $121. 4 million or loss of 65 cents per share. This also missed the Zacks Consensus Estimate of a loss of 59 cents. The company’s reverse stock split will improve the future earnings per share, making this a major motivation behind the decision.
Price Performance
Windstream has underperformed the industryin the past 12 months. The stock has lost an alarming 72.2% compared with a decline of 9.8% for the industry in this period. However, given the necessary steps taken by the company, which include the reverse stock split, the worst is expected to be over.