Unifi Reverse Stock Split May Help Company, According to Professor Michael Lord

8.27.2010 Article, Business Analytics, Faculty News

Unifi plans 1-for-3 stock split
Originally Posted August 27, 2010 | by Richard Craver
Reposted from Winston-Salem Journal

Unifi Inc. wants to capitalize on its recent return to profitability by potentially pumping its stock above the $10 threshold through a reverse stock split.

Unifi, based in Greensboro but with its largest operations in Yadkinville, will pursue shareholder approval at its annual meeting, which is tentatively set for Oct. 27.

The board of directors is requesting permission to conduct a one-for-three reverse stock split. That would reduce the number of outstanding shares from 60 million to 20 million.

It also would multiply the share price at that time by three.

In most instances, a reverse stock split is done to lift a stock above the $1 threshold to avoid being delisted by a stock market.

"Given the recent performance of our stock and the outlook for the company's future, we believe the reverse stock split of our common stock will facilitate long-term growth and enhance our shareholder value," said Bill Jasper, the president and chief executive of Unifi.

On July 30, Unifi reported a $10.7 million profit for fiscal 2010. It was Unifi's first profitable year since fiscal 2000.

The share price has made a remarkable rebound since hitting a low of 47 cents in March 2009.

After reaching a 52-week high of $4.60 a share during trading yesterday, it closed down 3 cents to $4.38. Unifi announced its reverse stock-split plans after the market closed yesterday.

If the reverse stock split had been in place yesterday, the share price would have been $13.14.

Analysts said that the strategy won't change the value of the company.

"This is another attempt by management to get the stock unstuck and create some forward momentum for the share price by placing it in a range that's perceived by investors to be more favorable," said Tony Plath, a finance professor at UNC Charlotte.

Michael Lord, an associate professor of management at Wake Forest University, said that some people don't like to invest in companies with very low priced shares "because the stock is perceived as more risky. It's not always a completely rational thing, but the belief is out there."

"With the market turmoil and the rough economy recently, many companies have had their shares drop into the low single digits. Citigroup is there, for example." Citigroup closed at $3.66.