THQ Plans "Reverse Stock Split"

THQ Plans "Reverse Stock Split"

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THQ has a plan to dodge the Nasdaq delisting bullet.

In January, struggling publisher THQ was given six months to get its financial house in order or be delisted from the Nasdaq. Its stock price has enjoyed a little bit of a bounce since then (although it's been on a slow but steady slide since peaking at around 75 cents in mid-April), but with the deadline looming, a return to the glorious "dollar days" of old isn't looking terribly likely in the near-term. So now THQ is going to Plan B: a reverse stock split.

The ol' reverse stock split trick, as explained by someone with only the most tenuous grasp on what it means, is actually a pretty straightforward proposition. Take three shares in THQ - or five, or ten - and smoosh 'em together. Pound them with a hammer until they're good and flat, then roll them up into a ball and presto! Three THQ shares - or five, or ten - have become one, with a commensurate increase in value. Of course, the actual value to shareholders doesn't change because the increase in individual share price is offset by the decrease in the number of shares held, but the Nasdaq doesn't care about that; it just wants to see that price over the $1 mark, and it's not too particular about how it happens.

The strategy carries some risks, as noted in THQ's most recent SEC filing, including decreased overall market capitalization and the very ugly possibility that its share price will sink back down to where it is now, which is pretty much the worst outcome possible. It will also increase the number of "odd lots" held by people with small numbers of THQ stocks. On the other hand, it's not as though it has a lot of options to pick from.

The plan will be put in front of stockholders during a meeting on June 29 and, assuming it gets the green light, will take effect in early July. A full breakdown of THQ's unstoppable master plan is up at the THQ Investor Relations website.

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Don't you DARE going bankrupt before releasing CoH2 and Dark Millenium.

That seems rather...unethical, to say the least. Clearly not illegal, but it wouldn't make me feel great as a shareholder. But like you said, they are basically clutching at straws at this point.

Good to hear they are starting to make a comeback, even if it is early days yet. But this article gave me an idea. Is now the perfect time to buy stock In THQ? Looks tempting.

Should this just be called stock compression? Calling this process 'reverse stock split' really makes me want to 'reverse split' the head of whoever thought that name up.

thebobmaster:
That seems rather...unethical, to say the least. Clearly not illegal, but it wouldn't make me feel great as a shareholder. But like you said, they are basically clutching at straws at this point.

Fairly standard procedure when a company is going through pains like THQ are at the moment, most stockholders wont object as the overall value of their holding shouldnt decrease.

I doubt it will make them feel great but I think feeling great is a feeling holders of THQ stock barely remember anyways :)

thebobmaster:
That seems rather...unethical, to say the least. Clearly not illegal, but it wouldn't make me feel great as a shareholder. But like you said, they are basically clutching at straws at this point.

It's pretty common in cases like this or with companies that have recently seen a boost in stock value but are still under the 1 dollar mark. On the other hand larger companies do a regular stock split to decrease the cost per share (while maintaining the same overall value for investors) to allow new investors to come at a lower price.

hanging your stock market charts upside down isnt going to change anything.

and isn't it strange that everybody cares about THQ even if they fucked up as bad as Interplay?

rhizhim:
hanging your stock market charts upside down isnt going to change anything.

and isn't it strange that everybody cares about THQ even if they fucked up as bad as Interplay?

What they are going for is bringing their stock above $1 for the length of time that they need to stop the delisting process. Once that process is stopped, they have bought themselves the time of another 6 months since the delisting process starts again. I think that if they can buy themselves enough time to release some of their core titles, they stand a good chance at coming back.

OT: Sensible move on their part. If they need to buy themselves enough time to release some major titles.

Scrustle:
Good to hear they are starting to make a comeback, even if it is early days yet. But this article gave me an idea. Is now the perfect time to buy stock In THQ? Looks tempting.

Usually not. Remember, even though the value of each share changes, the total value you have doesn't. Say you spent $50 bucks or so and picked up 100 shares. Then they reverse split 5:1.. suddenly your shares are worth $2.50.. but you only have 20 of them.

Worse, when the shares are only $0.50 there's really not a lot of incentive for people to bother shorting the stock.. the most they'll gain, after all, is $0.50/share. So even if they think the company's destined for bankruptcy, they probably won't bother.

At 2.50, however, suddenly there's some room for bears to make a bit of money by betting against the company.. and when they do that, the stock price falls. Which means now your 20 shares start losing value.

If you do think the company is going to do better usually a good time to get in is shortly after a reverse split. Of course, like everything in the stock market, 'usually' tends to mean "Any time but the time you actually do it", so you've been warned. Finally, I'm not a financial adviser, my advice is not official or any sort of guarantee of performance, you should only invest with money you can afford to lose, all investments carry some element of risk, any investment you make is your decision and yours alone, and any other disclaimer you can think of that basically means "Don't look at me if your money disappears.."

 

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