THQ has had some problems this past year. After a less-than-stellar holiday season, the company’s stock value fell below $1 a share, the minimum needed to remain listed on the NASDAQ stock exchange. The company has been given until July 23rd to reverse its fortunes, and while it has made some progress, the company’s stock seems to have settled at around 61 cents a share.
So what is a company that’s only worth $41.75 million to do? THQ has scheduled a shareholders meeting on June 29th in order to approve what is called a reverse stock split of the company’s common stock. They’ll have three options available to them when it comes to performing the reverse stock split: 1 for 3, 1 for 5, or 1 for 10. So what does a reverse stock split do exactly? Let’s assume that THQ goes for the 1 for 3 option. For every 3 shares of stock that a person owned in the company before the split, they’ll now own only 1 share. However, as the total value of the company hasn’t changed, that one share of stock will be worth more, as there is less stock in general for the company to sell.
I’m not an expert on the stock market by any means, but I can see how this option might be attractive to a company in dire straits like THQ. However, announcing plans for a reverse stock split, where less stocks will be available, seems to me that the company is showing weakness. I wouldn’t be too surprised if the company’s stock price were to fall even more, especially after the reverse split. It might be possible that even after the reverse split the company’s stock might still be under $1 a share, and the company is delisted. Here’s hoping that that doesn’t happen!