gnulaw (57.47)

On Reverse-Splits and Geeknet's (GKNT) Pending 1:10 Reverse-Split: In Perspective

October 05, 2010 – Comments (2) | RELATED TICKERS: GKNT , YHOO , AOL

On Reverse-Splits and Geeknet's (GKNT) Pending 1:10 Reverse-Split

Kenneth Langone emerged on the scene July 08, 2010. announcing a 1:10 reverse-split on August 4th. He and his "partners" now control 2/3 of GKNT's Board of Directors and approximatedly 30% of GKNT's common stock. Geeknet filed SEC DEF 14/A formally on September 13th announcing a 1:10 reverse-stock split to be held at a Special Shareholders meeting on October 14th.

So why did Kenneth Langone announce a 1:10 reverse-split on the heels of he and his partners amassing a 30% position? Langone, alone accumulated over 600,000 shares within weeks of his arrival. 

Note: Kenneth Langone is also a Director and beneficial majority shareholder of Unify (UFI). UFI also announced and filed a pending 1:3 reverse-split on October 27th. Unify also has approximately the same number of shares outstanding as Geeknet (60M).

Below are several articles addressing this controversial move including other companies that pursued this strategy. 

"...Sometimes less can mean more. The folks at Norwalk, Conn.-based Priceline.com are hoping this is true. The discount online travel firm announced a 1-for-6 reverse stock spilt effective today. In most cases, reverse stock splits are meant to bolster market confidence and, in Priceline's case, eliminate outstanding excess common stock..." (5).

"...When stocks perform well, an announcement of a coming stock split can make investors even more optimistic about the future. In theuncertain market environment we're facing now, however, many companies either have already made or are considering reverse stock splits to boost their share prices from extremely low levels. Still, investors have to wonder: Will reverse splits do any good, or are they basically the kiss of death for a company?..." (4).

"...I was mid-Exorcist on hearing that AIG (NYSE: AIG) posted a profit of $2.30 a share in its latest quarter. Wasn't the disgraced insurer trading for a buck and change earlier this summer? Did it actually earn more in a single quarter than its share price? The spinning was short-lived. I quickly realized that AIG had declared a humbling 1-for-20 reverse split recently, so a profit of $2.30 a share for the insurer today is actually $0.115 a share in June dollars. However, seeing AIG's stock trade as high as $28 this morning now finds me clearing room in my "exception to the rule" mantelpiece. For now -- at least -- AIG has become one of the rare companies to subject shareholders to a reverse stock split and win.

Anatomy of a split
It wasn't pretty at first. AIG swapped out every 20 shares that closed at $1.16 at the end of June for a single share originally valued at $23.20. The first few trading days after the zero-sum move proved disastrous..." (3)

Don't bet against Geeknet (or Kenneth Langone)? (2,1). It's all in the earnings...


References:

1.  (August 4, 2010)  Los Angeles TImes, Priceline.com shares hit 10-year high as earnings soar.

2.  (September 29, 2010) Don't bet against Priceline (or William Shatner).

3.  (August 7, 2009)  Motley Fool, Reverse Splits Aren't Always Fatal.

4.  (July 2, 2009) Motley Fool, Do Reverse Splits Ever Work?

5.  (June 16, 2003) Forbes, Priceline May Join Reverse-Split Winners Club.