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Bed Bath wants a reverse stock split. It’s good and bad.




Bed Bath & Beyond shares fell to fresh lows on Thursday as the embattled retailer sought shareholder approval for a reverse stock split, the latest in a series of moves aimed at staving off bankruptcy.

According to its proxy filing with the Securities and Exchange Commission late Wednesday, Bed Bath & Beyond (ticker: BBBY) is asking shareholders to sign off on the reverse stock split, at a yet-to-be-determined ratio of 1-for-10 to 1-for-20 , at the special meeting on May 9.

In a reverse stock split, each outstanding share is converted into a fraction of the share. So if it were to complete a 1-for-10 stock split, each share of Bed Bath would be worth one-tenth of a new share.

It is not the first time that the company has introduced the idea. Bed Bath warned that without the maneuver it could eventually be forced into bankruptcy, a looming concern that has become increasingly likely in recent months.

As has been the case with nearly all of Bed Bath̵[ads1]7;s recent efforts, the stock split serves to shore up dwindling cash reserves so the company can continue paying down debt and keeping stores stocked amid growing concerns about its ability to do both.

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The company had previously announced a plan to sell $300 million in new shares to shore up its finances. However, given that Bed Bath is now firmly in penny stock territory, the company is concerned that it will not attract enough investor attention, from both individuals as well as larger institutions that may be prohibited from buying shares that trade at such low values.

“In particular, we believe that an increased stock price will enable us to attract more institutional investors and investment funds that may not consider purchasing our common stock due to our low trading price,” Bed Bath said in its filing, while also noting that fixed shares. – Price broker commissions also affect lower priced stocks, as they represent a larger percentage of the total transaction.

By contrast, Bed Bath hopes that with a reverse stock split, “the combination of lower transaction costs and increased interest from institutional investors and investment funds may ultimately improve the trading liquidity of our common stock, which we believe will benefit all shareholders.”

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Of course, that can only be a temporary measure: $300 million in newly issued shares will necessarily be dilutive to current shareholders, so without a meaningful change in the company’s fortunes, the share price looks set to remain a problem.

Bed Bath shares closed down 8.3% to just under 31 cents on Thursday.

Write to Teresa Rivas at teresa.rivas@barrons.com



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