Hendrik Weimer's Quantenblog

Having fun with science and technology.

SCO About to Face Delisting Trouble, Again

2007-04-13

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Most of you probably remember the delisting trouble SCO got into because they failed to timely file their 10-K back in 2005. The same story will show up again soon, but this time for another reason: the stock price is too low to meet Nasdaq's requirements.

Nasdaq regulations require that for a stock to stay listed, it needs to be traded at a minimum price of $1.00. You can find out more about the regulations here. The relevant quantity here is the closing bid price, which is the last price a potential buyer offered for the stock. While the bid price may differ slightly from the closing price, it is still a reasonable indicator. Looking at the recent closing prices of SCOX you will notice that they closed below $1.00 for about 20 consecutive business days. After 30 business days below the minimum, Nasdaq will send a deficiency notice giving them 180 days before they face a delisting letter. During this period the company will be required to bring the stock up to the minimum for at least 10 consecutive business days.

So we see that SCO will have to do something about it, but what are the options? Or to put in in another way, what can a company do to boost its share price? Besides stopping to burn money and come up with a working business model, I mean. Such methods are commonly referred to as "corporate actions" and involve the following:

  • Buybacks: A company invests in its own stock. If SCO starts to buy its stock for $1.00, the problem seems to be solved. And, by reducing the amount of shares available each individual share becomes more valuable, leading to a further increase.

    However, there is a drawback: buybacks cost cash. And cash is something SCO does not have too much of if you look at the recent quarterly results.

  • Reverse stock split: Instead of ten shares at $0.90, give the investor one share at $9.00. This is allowed under Nasdaq regulations, but has a fishy smell associated with it. There is an interesting article on MSN stating that 75% of stocks trade lower after a reverse split. My favorite quote is "A stock isn't trading under a dollar unless it is pretty close to bankruptcy or it has some other serious troubles".

  • Find a copyright infringement in the Linux kernel. Nah, not likely.

You see, no matter what SCO decides to do about its share price does not really help. In any case it will be interesting and fun to watch.

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