AT&T's Ridiculous Reverse Stock Split

from the going-nowhere-fast dept

I had thought this last week when I first heard about AT&T’s decision to do a reverse stock split, and am glad that someone wrote a column at Business 2.0 pointing out what a bad idea this is. Besides being the first Dow component to ever do a reverse stock split, it basically shows that AT&T is giving up. They claim they’re doing it because institutional investors have in irrational fear of single digit stocks. However, as pointed out in the column, if that’s really the case then shouldn’t they be making plans to try to raise their stock above the $10 mark, instead of artificially inflating it? The only reason to do the reverse split is because they’re admitting their stock really isn’t worth more than $10. Reverse stock splits have long been associated with desparate companies making a last gasp effort to turn their fortunes around. Almost everyone sees through these plans – and just because the brand name is AT&T, it doesn’t make the reverse stock split any different.

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Comments on “AT&T's Ridiculous Reverse Stock Split”

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Ken says:

AT&T's reverse stock split

How does this reverse stock split increase the value per share? The one inch thick annual meeting publication states, “Pursuant to any reverse stock split, each holder of five shares of AT&T common stock, par value $1.00 per share (“Old AT&T Common Stock”), immediately prior to the effectiveness of the reverse stock split will become the holder of one share of AT&T common stock, par value $1.00 per share (“New AT&T Common Stock”) after consummation of the reverse stock split.”

As far as I can see, a stockholder is losing value. What am I missing? Will there be an expected stock price increase after the reverse stock split? Is that where we will get increased value?

dave shilling says:

at&t stock split

the reason theyare splitting is because once theri deal is finalized, they project their shares to be woth ~4.50 , and they want to keep their heads above water and sty above $10 a share. they justify that by offering some comcast stock instead, but instead of a 1:1 offering it will probably be a 1comcast for every 3 at&t, which means that all of the money lost from the comcast deal goes unaccounted for because only a third of that loss is being compensated for with comcast stock. even though comcast is currently worth more than at&t, it wont be when the reverse takes place. then you’ll be stuck with an ever dropping telecom stock and an immediate deficit

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