Bed Bath & Beyond stock fell to new lows on Thursday as the beleaguered retailer sought shareholder approval for a reverse stock split, the latest in a series of moves aimed at averting bankruptcy.
According to its proxy filing with the Securities and Exchange Commission late Wednesday, Bed Bath & Beyond (stock symbol: BBBY) is asking shareholders to sign a reverse stock split, at an as-yet-unspecified ratio of 1-for-10 to 1-for-20, in its extraordinary meeting May 9.
In a reverse stock split, each outstanding share is converted into a fraction of a share. So, if a split of 1 share for 10 shares were to be completed, each share of Bed Bath would be worth one-tenth of a new share.
This isn’t the first time the company has floated the idea. Pied Bath warned that without the maneuver it might finally be forced into bankruptcy, a looming concern that has become increasingly likely in recent months.
As has been the case with nearly all of Bed Bath’s efforts lately, the stock split is bolstering dwindling cash reserves, so the company can continue to pay down debt and keep inventories full amid growing concerns about its ability to do both.
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The company earlier announced a plan to sell $300 million in new shares to boost its finances. Given that Bed Bath is now firmly in penny stock territory, however, the company is concerned that it won’t attract enough interest from investors, both retail and large institutions, that it might be banned from buying shares trading at such low values.
“In particular, we believe that a higher share price will enable us to attract more institutional investors and mutual funds who may not consider buying our common shares due to our low trading price,” Bid Path said in his filing, noting also that brokerage commissions also affect prices negatively. on lower-priced stocks, because they represent a larger percentage of the total deal.
By contrast, Bed Bath hopes that with a reverse stock split “the combination of lower transaction costs and increased interest from institutional investors and mutual funds can eventually improve our common stock trading liquidity, which we believe will benefit all shareholders.”
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Of course this can only be a temporary measure: $300 million in newly issued shares would necessarily be dilutive to existing shareholders, so without a meaningful change in the company’s fortunes, the share price seems poised to remain problematic.
Bed Bath stock closed down 8.3% to just under 31 cents on Thursday.
Write to Teresa Rivas at [email protected]
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