One sure sign of a tumbling stock market is a rise in the number of companies thinking about reverse splits to support their stock prices and/or preserve their exchange listings. SoFi Technologies is probably the most high-profile example of this potential trend. The formerly high-flying Fintech company’s stock has lost 60% of its value this year, and it’s asking shareholders to approve a proposed charter amendment at its upcoming annual meeting to permit it to engage in a reverse split if the board so determines.
A major consideration for any company considering asking for shareholder approval of a reverse split is how ISS & Glass Lewis are likely to react to such a proposal. This recent Goodwin blog sheds some light on that issue:
ISS generally recommends voting for management proposals to implement a reverse stock split if the number of authorized shares will be proportionately reduced, or the effective increase in authorized shares is equal to or less than the allowable increase calculated in accordance with ISS’ Common Stock Authorization policy. ISS will recommend voting on a case-by-case basis if the proposal does not align with either of the two criteria above, taking into consideration, among other factors, a stock exchange notification of potential delisting. Glass Lewis notes that it may recommend voting against a proposal to conduct a reverse stock split if the Board does not state that it will reduce the number of authorized common shares in a ratio proportionate to the split.
By the way, if your company is thinking about a stock split or a reverse stock split, be sure to check out our article on “Unpacking Stock Splits” which appeared in the July-August 2019 issue of The Corporate Counsel.
– John Jenkins