bed Bath and Beyond
is planning a reverse stock split, the company said Friday, as shares declined in after-hours trading.
bed Bath and Beyond
(ticker: BBBY) stock was down nearly 20% at 83 cents.
In a reverse stock split, each outstanding share is converted into one fraction of stock. So if a company declares a one for 10 reverse stock split, every 10 shares will convert into one. According to the Securities and Exchange Commission, this move is usually done to drive up the share price.
“Our proposal for a reverse stock split will enable us to continue to execute our turnaround plans and rebuild liquidity to better position the company financially,” CEO Sue Gove said in a press release.
The move comes just weeks after Bed Bath completed a public equity offering to raise more than $1 billion. Equity offering injects more shares into the market, thus diluting the existing shares.
A reverse stock split would have the opposite effect. Bed Bath said in a filing with the SEC that the proposal would reduce the number of shares outstanding.
Bed Bath said in the filing that the offer could also improve sentiment for the company’s common stock, as it would likely result in a higher trading price. In turn, this could help increase brokers’ interest, especially among institutional investors and investment funds, the company said. The higher share price may also help in reducing the volatility of the stock, according to the filing.
That said, the move comes with some risks, including that the reverse stock split does not increase the price of the common stock or reduce the overall trading market for the shares.
Furthermore, markets view reverse stock splits negatively, which means that investors could lose money as a result of trading price fluctuations following the split, according to the SEC.
“Companies that undergo reverse stock splits are often in some financial distress with little chance of recovery,” explained a blog post by Titan Global Capital Management. “This could prompt investors to sell and move on.”
Holders of the Company’s common stock as of the close of business on March 27 will be permitted to vote on the proposal at a special shareholder meeting later this year. Bed Bath said the time, venue and other details regarding the special meeting would be intimated later.
The company said Friday that Bed Bath & Beyond’s board has not yet determined the ratio of the proposed split, but it will range between a ratio of five for one to 10 for one.
Bed Bath said, the reverse stock split “will have no impact on the real or intrinsic value of our business or shareholder’s proportionate ownership in the company.” It will also have no impact on the company’s business operations or outstanding loans.
Write to Sabrina Escobar at [email protected]