This is an excerpt from a write-up in Seeking Alpha about the NeoStem R/S (NBS)that took place last week. Stock has been going up every day since.
NeoStem announced that it would be undergoing a reverse split that would be effective for trading on July 16, 2013. The split itself has no impact on the valuation of the company. During a reverse split, a company's outstanding shares are reduced according to the ratio specified in the official announcement. At the same time, the share price is adjusted up at the same ratio to keep the company's market capitalization equivalent. In NeoStem's case, their outstanding shares were adjusted from 196,643,748 to approximately 19.7 million. With the stock now trading around 6.65 per share, the company's market capitalization remains roughly at $135 million.
There are many examples of reverse splits benefiting stocks. The most successful reverse split that comes to mind is American International Group (AIG). AIG shares closed at $1.16 on June 30, 2009. After the close, the post-split price became $23.20 (after a 1-20 reverse split). Since then, the stock has done nothing but soar causing all shareholders to stand up and applaud the decision to leave the single digit trading range. AIG currently trades at $46.97 meaning that its share price has more than doubled since the reverse split. Likewise with NeoStem, I anticipate shareholders being very pleased with this decision a few years down the road. Now that NeoStem no longer trades in pennies, institutional investors are much more likely to consider investing here which will allow for price stability going forward.
A lot of the people around here, despite claiming to know a lot, and be long-term investors, are not that interested in a r/s because they have delusions Factsforfood. I agree, a r/s sooner than later is likely the best way to go for THIS stock because of the opportunity to uplist. Even if it drifts down immediately afterwards, there is so much news pending, as soon as that news is announced, it will offer a great opportunity for institutional investors that they will not be able to resist. With fewer shares, news will much more likely lift the value in a lasting way. Any news that has a big meaning released prior to a r/s is a WASTE of news. It's great for the idiot penny traders, but for us long-termers, it's horrible. Unfortunately, many people don't really understand what really is, or why it works or doesn't work. So talking about it on bulletin boards is a waste of time.
I have had 3 companies do R/S. I personally don't think they are good unless there is a growing revenue stream. The last 2 that I have had are VGLS that has lost 50% since the split 3/4 months ago (no Revenue stream) and NBS which was .58 and split 10-1 to 5.80. In one week it is now 7.47 (has a good revenue stream).
I also had Sirus at under .19 and it has slowly climbed without a split because its revenue grew. If ACT splits without a Revenue stream, it will do what VGLS did. If they wait till they get FDA approvals, they won't have to worry about a Split or PPS.
Southern, I have been back and forth for a long time on this subject but your post makes sense to me. I do think a RS is good for the company and I believe most members would agree. Those that are anti-RS believe the RS crushes their personal get rich dream. The reality of the market is the RS is inevitable. How and when it occurs is up to the CEO and BOD. Gary promised it would only be done from a position of strength which we are not at this time. Let's hope he holds to his promise as this decision is critical. As for Keep, he has no faith in Gary doing the right thing, and that explains his attitude. He will let all know if he turns out to be right. This is just MHO. Good luck to all longs who have faithfully been there for this company. May their reward be great.
Fact, the facts are that a RS does not help a company that isn't sound financially, which ACT is not, and if they do decide to do a RS while being unsound financially, the shorts will only pick their bones clean. And the successful RS's you're talking about are companies that were sound financially and only needed to reduce their dilution, thus rising their share price, so that financial institutions would start trading them.
So a resounding NO from the Keep, and the Keep knows all.