Bed Bath & Beyond Proposes Reverse Stock Split, Stocks Tumble

In a reverse stock split, each outstanding share is converted into a fraction of the share. So if a company declared a 1 for 10 reverse stock split, every 10 shares would be converted into a single one. This move is generally taken to increase the stock price, according to the Securities and Exchange Commission.

“Our reverse stock split proposal will allow us to continue building liquidity to execute on our turnaround plans and better position the company financially,” CEO Sue Gove said in a press release.

The move comes just a few weeks after Bed Bath completed a public stock offering to raise more than $1 billion. Stock offerings bring more stocks into the market, diluting existing stocks.

The reverse stock split would have the opposite effect. The proposal would reduce the number of shares outstanding, Bed Bath said in a filing with the SEC.

The proposal could also improve perceptions of the company’s common stock, Bed Bath said in the filing, as it is likely to result in a higher trading price. This, in turn, could increase broker interest, especially among institutional investors and investment funds, the company added. A higher share price could also help reduce stock volatility, according to the filing.

That said, the move carries certain risks, including that the reverse stock split won’t raise the price of common stock or lower the overall trading market for the stock.

In addition, markets tend to view reverse stock splits negatively, meaning investors could lose money due to the fluctuations in trading prices after the split, according to the SEC.

“Companies that implement reverse stock splits often find themselves in financial trouble, with little prospect of recovery,” explains a Titan Global Capital Management blog post. “This may prompt investors to sell and move on.”

Holders of common stock in the company as of the close of business on March 27 will be allowed to vote on the proposal at a special shareholders’ meeting later this year. The time, location and other details regarding the special meeting will be communicated at a later date, Bed Bath said.

Bed Bath & Beyond’s board has yet to determine the ratio of the proposed split, but it will range from a ratio of one in five to one in 10, the company said Friday.

The reverse stock split “would not have any effect on the actual or intrinsic value of our company or the proportionate ownership of any shareholder in the company,” Bed Bath said. It will also not affect the Company’s operations or outstanding debts.

Write to Sabrina Escobar at sabrina.escobar@barrons.com