Motorola Inc. is seeking a reverse split of its common stock, hoping to boost the price of its shares before it splits into two publicly traded companies early next year.
In a reverse stock split, investors receive fewer shares for their current holdings. Fewer outstanding shares usually increase the stock price, although there’s no guarantee the price will return to its previous level after the split. Motorola’s shares have traded below $10 apiece for the last two years. In afternoon trade, the company’s stock was up 3.8 percent at $8.70.
Motorola is planning to spin off its mobile devices and cable set-top box businesses into a separate company called Motorola Mobility in the first quarter of 2011. New stock will be issued for that company.
The remaining company, consisting of the division that makes communications gear for public safety and enterprise customers, will be called Motorola Solutions. The reverse stock split would affect the shares of Motorola Solutions.
“Ideally, you’re creating a new company here, so you want a fresh start with a more reasonable stock price, which attracts more institutional investors,” said Tavis McCourt, an analyst at Morgan Keegan.
McCourt said he expected Motorola to undertake a reverse stock split. Many institutional investors “have a real hesitancy” about buying stock priced in the single digits, McCourt said.
Motorola acknowledged this “marketability” issue in a filing with the Securities and Exchange Commission, saying that in addition to institutional investors’ reluctance, brokerage firms may shy away from recommending lower-priced stocks to their clients.
The split may cause Motorola’s stock price to reach “a level that would be viewed more favorably by potential investors,” the filing said.
Nothing says Confidence quite like a reverse stock split.
For me, a reverse split is a call to sell…..
I’m with Chris. I saw this play before when Lucent did a reverse split. As soon as they finished, the stock price nosedived and Lucent stock is now virtually worthless.
Sell the rev. split is a trap for the individual investor.
Microsoft Corp sued Motorola Inc, alleging patent infringement on the handset maker’s line of Android phones, in the latest development in a web of legal actions in the evolving smartphone business.
Motorola is planning to spin off its mobile devices and cable set-top box businesses into a separate company called Motorola Mobility in the first quarter of 2011. New stock will be issued for that company.
This spin-off will be left holding the bag for the suit against the handset maker.