Saw this news item and wondering
a. what are stock splits?
b. how do splits actually help a company? i.e. Does it make them more money?
In: 0
The reason AMC is doing a reverse stock split is to keep their stock price high enough to avoid becoming a “penny stock.” Basically, a penny stock is one that trades under a dollar, and the NYSE will delist (i.e., remove) stocks that trade under a dollar (technically, their daily closing price cannot be below $1 for 30 consecutive days if they wish to trade on the NYSE).
The reason their (already low) stock price is in danger of moving into penny stock territory is because AMC is converting some of it’s preferred equity (basically “higher-level” stock) to common stock, and that conversion will highly dilute existing shares of stock (by up to 90%). This means that a share worth $5 before the equity conversion will be worth about 50 cents afterward. A 10-1 reverse stock split in theory brings the stock price back to $5 per share, but cuts the number of shares by 90%.
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