Investing

Unisys' Futile Reverse Stock Split Approval (UIS)

Unisys Corporation (NYSE: UIS) must not have learned the valuable lesson that many other troubled technology firms have learned about reverse stock splits.  This morning came the announcement that the company’s board of directors has approved a 1 for 10 reverse stock split of the company’s common stock, and this is the formality as it follows a shareholder approval of a reverse split with a ratio of one between 1 for 5 and 1 for 20.  The good news is that this hasn’t hurt shares this morning.  The bad news is that these reverse splits generally do not work.

The number of authorized shares will be slashed from 720 million to 72 million.  Unisys also noted that no fractional shares will be issued in conjunction with this reverse stock split, as those holders will receive a cash payment in lieu of a fractional share.

What makes this approval odd is that the reverse split is just not needed any longer.  When this reverse split was approved it was because the old $1.00-rule had previously been violated per NYSE credentials.  But now shares have recovered on their own to $2.79 and the 52-week trading range is $0.28 to $3.17.  In short, its shares have no recovered an effective tenfold from their absolute lows.  That is almost unheard of even if the major indexes have recovered 50% to 60% since those absolute lows.

The risk here is that Unisys is just going to give the short sellers a chance to get back in.  If short sellers like selling one type of stock, it is troubled technology players who try the trick of seeing what happens when they take their shares from $2.00 to $20.00.

JON C. OGG
OCTOBER 6, 2009