Sun looks to brighten stock with reverse split

Company is seeking shareholder approval to initiate a 1-for-4 reverse stock split, in a move to attract large investors.

So, Sun investors, does that $5 stock price got you down? Change may be in the wind.

No, there is no crystal ball or vision of a mega-buyout around the corner. But rather, the company is looking to throw a little Miracle-Gro on the stock.

Sun Microsystems is proposing a 1-for-4 reverse stock split and is asking its investors to sign off on the idea at its annual shareholders meeting on November 8, according to its filing Wednesday with the Securities and Exchange Commission.

If investors approve the reverse split, four of those $5 stocks would be combined and increase in value to a single $20 share, for example. Investors may feel a little richer, saying they own a $20 share. But, in reality, their wallet will know nothing has changed. It's like swapping out four $5 bills for a $20.

Sun, however, notes the company can benefit from this reverse split.

"The investing guidelines for certain institutional investors and investment funds prevent them from investing in our common stock at current price levels," Sun states in its SEC filing. "A higher price could change all that."

Sun also noted other benefits would include putting its share price at a level comparable with other industry titans with stock that is widely held. But the filing doesn't mention what would happen if these "other major" companies did the same: Sun would be a $20 stock among $80 stocks.

And, of course, should Sun get the approval it seeks from its shareholders, there is no guarantee that the stock would continue to trade at a $20 level. While Sun notes other companies like itself with over a $1 billion market capitalization have seen median returns of 3.6 percent in the year after a reverse split became effective, there are no guarantees of similar results.

 

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