Radio One reverse stock split puzzles some analysts
Friday, December 25, 2009
Lanham-based Radio One said this week that its shareholders approved a plan for a reverse stock split -- a move that analysts say is likely to increase the company's price for each share, although it doesn't increase the underlying value of a shareholder's holdings.
Founded in 1980, Radio One owns and operates more than 50 radio stations across the country aimed at African American and urban listeners. The company has struggled in recent years to hang on to listeners in an increasingly competitive market, and the recession has intensified its tough ride as advertising dollars have shrunk, analysts said.
Radio One's share price has gone from just under $8 per share two years ago to a low of 20 cents in the past year. In the past month, daily closes have ranged from $3.00 to $3.80.
After its annual shareholders meeting, Radio One said the exact terms of the reverse stock split have not been determined. Company officials did not comment, citing Securities and Exchange Commission rules for a quiet period ahead of stock changes. The stock split could be a ratio of "not less than one-for-two and not more than one-for-fifty," according to a statement from Radio One. The company's board of directors "retains the right to determine whether or not to actually effectuate any reverse stock split," the statement said.
Companies typically do a reverse stock split when their stock price falls below the $1 threshold that requires delisting. Radio One's move for a reverse stock split comes, analysts say, as business is showing signs of improvement.
"It helps them in the future," said Mark R. Fratrik, an analyst at BIA/Kelsey. "This will bring them further away from the $1 threshold of being delisted if things got seriously worse again."
Still, he said the reverse stock split is a sign that the company has "an image issue."
"This is not a good thing to do," Fratrik said. "It is not an indicator of financial health. It is an indication of the public perception we saw earlier this year of the radio industry."
This past summer, Radio One ended a six-quarter losing streak as it reported a $7.2 million profit for the April-through-June period. For the third quarter, Radio One said it earned $14.2 million, compared with a loss of $266.1 million a year earlier.