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Chapter 1. Sages and Charlatans: Avoidin... > Red Flag 15: A Company Does a Revers...

Red Flag 15: A Company Does a Reverse Stock Split to Remain Listed

A reverse stock split is often a last desperate attempt by a company seeking to prevent a market from delisting its stock, and it often fails. This strategy is like shuffling the deck chairs on the Titanic, as Noah Blackstein, vice president and portfolio manager at the Dynamic Power America Fund, told Reuters when AT&T Corp. announced a reverse stock split in April 2002. Companies that use the method are almost certainly already in deep trouble, with a share price already down a long way. For example, in December 2002, telecom equipment maker Lucent Technologies announced plans for a reverse stock split of anything from 1-for-10, 1-for-20, 1-for-30, or 1-for-40 by February 2004. Its shares fell about 8 percent the day after the announcement to reach $1.74, and at that stage had lost more than 97 percent in about three years.


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