Share Consolidation - Legal Theft

[Ann]

KAS did a 10 to 1 share Consolidation on 2/1/2019. This was approved by stockholders on the 20 of December 2018. There has been no trading since the 19 of December 2018. Consolidations are bad enough but when you are totally trapped even if you read your annual report it seems horribly unethical. Legal of course, all legal!

 

[Ann]

Just updating the Wealth Warning template.

WEALTH WARNING: This stock has been subject to a Consolidation in the past and may at some time in the future cause you to lose all your invested capital. Better value elsewhere.

 

[Ann]

XTV - This is a particularly nasty one 200 shares consolidated to 1 share and all done while the company is in suspension. First day under the new structure 11 Jan 2019.

 

[TiminOz]

WHAT ~IS~ CONSOLIDATION exactly?

Hi traders!

I'm a newbie who is interested in a stock that was consolidated in the past, so I want to find out what it actually is.

There doesn't seem to be any reference on Investopedia, in Graham or on Youtube.

Is there:
- a more precise/formal description for this practice that I could google
- even better, a clear thorough description somewhere someone can point me to

And is it related to/same as a share SPLIT? Maybe it's a REVERSE split?

Unfortunately the word is used to describe quite a variety of things.

 

[Ann]

WHAT ~IS~ CONSOLIDATION exactly?

Hi traders!

I'm a newbie who is interested in a stock that was consolidated in the past, so I want to find out what it actually is.

There doesn't seem to be any reference on Investopedia, in Graham or on Youtube.

Is there:
- a more precise/formal description for this practice that I could google
- even better, a clear thorough description somewhere someone can point me to

And is it related to/same as a share SPLIT?

Unfortunately the word is used to describe quite a variety of things.

Hi Timinoz,

Yes it is a very over used word. In charting I will talk about a 'consolidation phase' that tends to be a good thing!

However back to your question about this particular Consolidation. It is when a company decided they want to reduce the number of shares they have on issue. The appropriate avenue for a company to reduce their shares on issue is a buy-back. If they don't want to do that, they just have to sneak a resolution into their Annual General Meeting saying they are going to Consolidate their shares by turning say 40 shares into 1 share or even 200 shares into 1 share on such and such a date. This effectively can reduce an original holding of say $10,000 worth of shares to maybe $10 or nothing depending on how much the shares were at the time of Consolidation. Hope that makes it clearer...if not please ask for some more explanation.

A share split is when they give you extra shares for nothing but the value tends to be reduced. I have actually done really well with share splits in the past.

 

[Ann]

WHAT ~IS~ CONSOLIDATION exactly?

Hi traders!

I'm a newbie who is interested in a stock that was consolidated in the past, so I want to find out what it actually is.

......and then after the Consolidation at some time in the future they issue millions of new shares and then do a massive share placement of millions of shares to some venture capitalist thereby diluting the stockholders share value who were foolish enough to buy into a shifty bit of junk after Consolidation. Still interested in the stock you were looking at?
This stuff is fine for the day trader or those who don't mind losing their money on a short punt. I prefer to stay well away.

 

[Triple B]

Hi Ann. Have you been keeping an eye on CXZ. Most interesing . When I first
posted share price was 1.2c . now about 1.7c close Friday. thats about 41% gain
This move should now attract "penny stock"traders as they screen for movers. The more that find it the more buying there should be . Also consider this company was at one stage $36.00 (no Typo)
I expect the big news at the end of Jan when the buy back is complete. They may even have some negative news before then to help keep a lid on things .
I Might Start a Hunting for pennies thread as I will be more relevant than having it here as this is more for the consolidators.

 

[Triple B]

Hi Tim . The real trap is for the unwary investor who does not read the asx news every day on their investment. The company needs to inform holders of an upcoming vote on the consolidation.(I assume)
That is the time to get out. (when the notice to vote comes out) . If the vote is positive for the consolidation there may be a week or more till that happens. Now is the second chance to get out.
Sometimes there may be a trading halt after(or before in the case ann shows above) the vote and you get trapped in. Read the article ann posted above about what happened to old mate in TEN. His numbers were off but he still lost the lot.

 

[Triple B]

CXZ news of GM roll out out today. now at 0.018

 

[TiminOz]

USEFUL EXPLANATION about STOCK CONSOLIDATION for NEWBIES (I hope),
BUT ALSO A QUESTION

Hey guys,

(For the purposes of educating my newbie self,)

I've now had a really good read about
SHARE CONSOLIDATIONS / REVERSE SCRIPS / REVERSE SPLITS (all the same thing).

My understanding is:
1) Technically, there is no drop in the value of your holdings
2) However is it potentially a warning of problems which MAY reduce the value of your holdings (even soon)

Expanding on 1):
If they turn your five $1 shares into 1 share, that 1 share is priced at $5.
So the value is exactly the same.

[SIDEBAR: Old mate mentioned in the SMH seems to have misunderstood what was going on: not reaslising that each (consolidated) share was also WORTH proportionally more...So he thought he'd immediately lost money, I think....The expert replying to him seems to have noticed this and advised him to consider consulting a knowledgable broker from now on!

But of course, the reverse-scrip did not auger well and he later lost money because of the problems with the company.

[SIDEBAR WITHIN SIDEBAR: regardless of any nefarious conduct, it's also clear that - at least for a while - people thought net advertising would kill TV advertising...I myself always doubted this. I've clicked on two ads in 20 years! TV ads are far, far more noticable!]
]

The reason they do it is mainly to increase the headline price of the shares,
especially to:
- make them seem more attractive, which is yes, pure marketing
- to prevent delisting on a certain exchange (because the price is too low)
- to prevent falling off the list of potential buys of certain players (ditto)
- because they are making some kind of new offer (eg a subsidiary???), which they (genuinely?) believe is worth more and so they don't want the poor current price of their stock to (unfairly?) influence that?
- and perhaps other reasons I can't remember lol !

(A few articles about all this on Investopedia)

Please feel free to correct me if any of this is wrong,
...and question below!

 

[TiminOz]

Question for Ann or others...'Marketable parcels'?

Ann,
you mentioned something about consol' causing a problem with 'marketable parcel'(s)...something perhaps about being left with a quantity that can't be sold?

Could you elaborate?

In principle I can already see this:
Its surely easy to sell 20 apples at $1 each
than 5 parcels of apples (that cant be broken up) at $5 each...
For one thing, each parcel is more pricey...

That's all I've worked out so far....
_________________________________

I also seem to remember that if your holding doesn't quite match the new division of shares, they will do one of the following:
- round your holding up
- send you a cheque or ask you to donate it to charity
- or even keep it for the company (not so keen on that one!)
...but that could vary with country, and may have actually been related to SCRIPS/SPLITS rather than REVERSE script/splits, or perhaps even to rights issues?
(Argh I'm a bit confused there!)

 

[TiminOz]

Throwing out a small 'challenge' to a point Ann made !

Hey Ann,
(from memory) you said that some companies will do a consol to make the co more attractive to someone like a a venture capitalist...

I can see how this might happen if the consol leads to increased interest and therefore the post consol price itself goes up....

But surely a venture capitalist wouldnt be fooled by the 'marketing' aspect of the shares suddenly leaping in price? Wouldn't they have the smarts to know about such things?

What am I missing here?

 

[Triple B]

marketable parcel is $500 doesnt matter what the share price is
CXZ is currently buyng back share parcels under $500. You need to notify them if you dont want to sell to them. If you dont notify they will buy back the shares at the end of Jan from memory.
your $400 worth of shares at the cut off date (mid jan i think) may then be worth $800. but they buy them back anyway as they were worth less than $500 on the cut off date.

 

[TiminOz]

Finally, MOST IMPORTANTLY:
A question: P03 - what gives?
(For Ann and anyone else )

The whole reason I even became interested in consols was your comment on P03 Ann, because I am actually thinking of getting that as my first ever stock.

My day trader friend* has it as his only long-term stock, after looking into it quite a bit.

So right now I'm looking into it.

Do you know anything else about P03 you think I should be careful about and look into further.

_______________________
* He's been doing it for about a year

 

[TiminOz]

marketable parcel is $500 doesnt matter what the share price is
CXZ is currently buyng back share parcels under $500. You need to notify them if you dont want to sell to them. If you dont notify they will buy back the shares at the end of Jan from memory.
your $400 worth of shares at the cut off date (mid jan i think) may then be worth $800. but they buy them back anyway as they were worth less than $500 on the cut off date.

Why are they buying them back?
(From memory) I remember Ann (or someone) saying that a buy back was a better way to....? reduce the total number of shares in the market ??

Is it to prevent the consolidation causing too much pain for smaller shareholders?

My understanding anyway is that you only need to buy $500 the FIRST time you buy a share.
After that you can sell any amount you want...?

 

[Triple B]

They state the cost of shareholder administration is high so reducing the number of shareholders reduces costs.
Not 100% sure on selling under $500

 

[Triple B]

looks like buy only is Min $500 but companies can legally buy back less than $500 with notice.
Companies seem to like to state in the buy back notice that share holder may have trouble selling parcels less than $500 but no mention of it being a rule. I think selling smaller parcels in the micro caps would be easier than a larger parcel! ASX rules define a small parcel but nothing about selling.
Would advise to check with your broker if they are happy to sell small parcels. Some have a $600 min buy limit.

 

[Triple B]

I just checked with self wealth online chat and the minimum buy is $600 . selling less than $500 is no problem.

 

[Triple B]

The thing with the consolidations are that they are not necessarily a bad thing in themselves.
However they CAN be seen as a last resort for companies really struggling.
When a consolidation happens and you are then stuck in a trading halt , you have no control to sell your holdings. If after the halt the share price opens drastically reduced , bad luck.
It can work the other way too . A Company might have good reason to consolidate shares and the price goes up . Or the value of your shares stay the same. Old mate eg earlier was an example where someone lost the lot , and the writing was on the wall.
Think of them as a tool the directors can try to use when in trouble , or a tool for a legit positive reason.(cant think of one ATM)

 

[So_Cynical]

Stock consolidations come in two flavours, basically recapitalising a broke company or simply a bit of a reduction in the number of shares on issue, i have a large portfolio thus have experienced a few consolidations of both variety's, some consolidations are benign others deadly.