Reverse stock split

Article summary

In finance, a reverse stock split or reverse split is a process by which shares of corporate stock are effectively merged to form a smaller number of proportionally more valuable shares. The "reverse stock split" appellation is a reference to the more common stock split in which shares are effectively divided to form a larger number of proportionally less valuable shares. New shares are typically issued in a simple ratio, e.g. 1 new share for 2 old shares, 3 for 4, etc. A reverse split is the opposite of a stock split. Typically, the exchange temporarily adds a "D" to the end of a ticker symbol during a reverse stock split. Sometimes a company may concurrently change its name. This is known as a name change and consolidation (i.e. using a different ticker symbol for the new shares). There is a stigma attached to doing a reverse stock split, as it underscores the fact that shares have declined in value, so it is not common and may take a shareholder or board meeting for consent. Many institutional investors and mutual funds, for example, have rules against purchasing a stock whose price is below some minimum, for example US$5, the boundary price below which the SEC considers a stock to be a penny stock. A common reason for a reverse stock split is to satisfy a stock exchange's minimum share price. A reverse stock split may be used to reduce the number of shareholders.…

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