Share Consolidation - Legal Theft

[TiminOz]

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.

Why reduce the number of shares?

 

[Triple B]

The increased share price may attract more investors from a pchycological viewpoint , or some institutional investors may have in house rules about investing in stocks under $x.
A Company quoted at $5 LOOKs better to some than a company trading at $0.50

 

[So_Cynical]

Why reduce the number of shares?

Depends - if a company is broke and has 1 billion+ shares on issue and trades or last traded at 1c or less then it make sense to reduce the shares on issue and thus raise the share price so more shares can be issued at the higher price - recapitalising the company.

If a company isn't broke but has a billion+ shares on issue and 500+ share holders it makes sense to do a small consolidation of say 10 or 5 to 1 and then clean up the smaller share holders by offering to buy their shares and save on admin costs.

 

[sptrawler]

Another reason for consolidation is, they sometimes get in the $hit and issue ship loads of shares to raise capital, if they get out of the $hit they then can consolidate.
Many do the first, but don't get to second base. lol

 

[TiminOz]

....raise the share price so more shares can be issued at the higher price - recapitalising the company.

If a company isn't broke but has a billion+ shares on issue and 500+ share holders it makes sense to do a small consolidation of say 10 or 5 to 1 and then clean up the smaller share holders by offering to buy their shares and save on admin costs.

...so recapitalisation must occur mainly AFTER the consol, right? Because the consol itself doesn't change the total value of the company...You're saying that with the new higher price they then issue MORE shares, so they get more $....

People often talk about these share admin costs...they must be substantial...

Forgive my ignorance but how does the higher price/fewer shares help to clean out the smaller holders? (Compared to status quo?)

 

[TiminOz]

Another reason for consolidation is, they sometimes get in the $hit and issue ship loads of shares to raise capital, if they get out of the $hit they then can consolidate.
Many do the first, but don't get to second base. lol

I get that they issue more shares to raise cash, but why consolidate afterwards?

 

[sptrawler]

I get that they issue more shares to raise cash, but why consolidate afterwards?

They consolidate to lift the share price, it makes the company look like it is doing better and also some larger investment companies only buy into shares above a minimum entry price.
Also for the casual observer, the consolidation doesn't show up, so wow last time I looked they were only x now they are triple that. lol

 

[basilio]

Consolidation is useful to "tidy up" numbers of small shareholders where admin costs outweigh value to the company.

But overall the real purpose is to disappear years of capital raising that has destroyed shareholder value.As SP has pointed out it makes the company look good for the next bunch of wood ducks who can be attracted to a dump and pump.

It is also important to realise that it is far easier to pump a company with 100m shares on issue rather than 1 billion or 5 billion. In my view the big value in many smaller shares is the opportunity to create temporary creative markets and benefit from the short term share swings.

 

[TiminOz]

Also for the casual observer, the consolidation doesn't show up, so wow last time I looked they were only x now they are triple that. lol

Wow that really IS dodgy...

Hence the necessity of looking up the history of documents I guess...

 

[basilio]

Wow that really IS dodgy...

Hence the necessity of looking up the history of documents I guess...

Yeah... Good luck with that.

Tim one of the realities of the stock market is that at the smaller end there is a constant shuffling of companies coming in and out of existence. They will be mining exploration, or IT or, graphite or whatever is the latest craze.
The intention is to capture public interest and make money on whatever is the buzz word. These forays last between 1 and 3 years before they destroy their share base and have sucked out as much as possible through extra capital raising. When the orange is squeezed dry the directors move onto the next scam.

But it is difficult to follow the history of these companies. They disappear. The websites go. The stories go. In fact one of the better sources is on ASF where you might find the old discussions of these creative scams.

 

[divs4ever]

Until you as a shareholder experience a Consolidation of shares you will never be able to appreciate the feeling of being legally robbed of multiple thousands of dollars. It works this way. Buried in one of the annual reports or interim reports there will be a notification of a motion for shareholders to vote on a Consolidation of the company's shares. As most of the people voting are the ones who have a self interest in the Consolidation, the motion will always be passed. Then a little while later you will get a letter saying your share holding in the company has diminished to a fraction of your original holding leaving you on many occasions holding a non-marketable parcel or very close to it if you don't get out fast.


Consolidations confirm failure


Shareholders often receive letters from their directors like this:


“We are pleased to announce that following shareholder approval received at the General Meeting we have completed a 50-for-1 share consolidation. This consolidation will deliver a simplified and more efficient share capital base and reposition the stock for broader investor appeal.”


More appropriately the letter from directors should be couched thus:


“We very much regret having to advise that for every fifty shares you once owned in BadlyManaged Limited, you now have one. This savage reduction reflects the underlying diminution in the value of your shares that has already taken place during our stewardship of BadlyManaged. If your shares are still worth anything it would be in your best interests to sell them now and invest the proceeds in a company in the ASX 200.”


Here is a classic:


If in 2006 you bought 50,000 shares in Antilles Oil and Gas NL (formerly Advance Energy Limited), they were worth $14,500 at the closing price of 29 cents on 2 June 2006. The value of your shareholding gradually dwindled and by May 2014 the shares were trading at a tenth of a cent and your 50,000 shares were worth about $50. In June 2014 the company completed a 1 for 60 consolidation. Your new holding of 834 shares traded around the three tenths of a cent mark and was worth in total about $3. A couple of months later the company again consolidated your shares 1 for 80. Your new holding of 11 shares was and is worth nothing.



The whole idea behind a consolidation is to try and restore the company’s share price into the investment grade range and thus make it more appealing. Don’t be fooled, the damage has already been done. http://www.investogain.com.au/companies/corporate-actions

There are an enormous amount of these Consolidations happening all the time and it isn't just happening to small speculative stocks, it can be major mainstream stocks and they can take out life savings from people who can least afford it......

quote: "I am a self-funded retiree in my 80s. In September 2015 I bought 50,000 shares in Ten Network Holdings at $0.1925 each. In October 2015, I bought another 50,000 at $0.1925 each and, in November 2015 I was allotted 18,919 shares at $0.15 each, taking my total to 118,919 shares. On January 21, 2016, I received a statement from Ten Network advising me that due to consolidation of capital on the basis of 10 into 1, I now hold 11,892 shares only. The price of the shares on January 21, 2016, was quoted as $0.14 each, which means my capital was reduced by $107,027 overnight. I was never notified by the Ten Network that such action was going to take place. Shouldn't the shareholders have been notified prior to such action? Is such action legal, or even ethical, taken by the network without discussing it with the shareholders first? I would appreciate it if you can clear up this matter for me, as I am not well-versed with share trading. T.O."
https://www.smh.com.au/money/invest...onsolidated-is-that-fair-20160906-gra48o.html

Eventually the price of TEN diminished to nothing and went into receivership and then.....
On the 10 November 2017, leave was granted to the receivers and managers of TNHL to transfer shares in TNHL pursuant to the deed of company arrangement to CBS Australia or its nominee. CBS Network Ten BV was nominated as the proposed transferee. Shareholders in TNHL did not receive any payments for the transfer of their shares.

There goes an 80 year old gentleman's $100,000 plus and probably quite a lot more just like him. It would be interesting to know the $ value of that particular Consolidation of ordinary shareholders investments. The rich get richer and the poor get poorer, and the worst part, nobody cares.

We must begin to protect ourselves and each other as best we can. We need to educate ourselves. If we want to buy a share, we need to check to see if it has had a Consolidation and if it has, best advice is to move on. Go through all the ASX notifications for all the years the stock has been listed. Hunt out the Consolidations if there were any. You can find out how long the stock has been around by looking up delisted.com.au http://www.delisted.com.au/ They list all shares not just those which have been delisted. It gives you the company name changes and Directors names and a host of other very valuable information.

now to be fair TWO shares i have held ( one since sold ) that have been consolidated went on to bigger and better things ( QZL and BSL ) but both with a lot of drama , before relearning how to fly .

but on the average ten 'money-pits' to one eagle , Ann has it just about perfect for my experiences in consolidations

more interesting is the case of share splits ( turning one share into say 5 or 10 news shares ) the longer term trends seems ( in the shares i have held doing this ) that the new share price climbs toward the OLD share price .. so a $10 APE share was split into 5 shares with now trade at around $15 each ( but NOT without some dramas in between .. they hit $2.65 in March 2020 )

 

[divs4ever]

Wow that really IS dodgy...

Hence the necessity of looking up the history of documents I guess...

yes a classic trap from those glancing at charts , and i bet PLENTY have been caught under-researched

 

[divs4ever]

Yeah... Good luck with that.

Tim one of the realities of the stock market is that at the smaller end there is a constant shuffling of companies coming in and out of existence. They will be mining exploration, or IT or, graphite or whatever is the latest craze.
The intention is to capture public interest and make money on whatever is the buzz word. These forays last between 1 and 3 years before they destroy their share base and have sucked out as much as possible through extra capital raising. When the orange is squeezed dry the directors move onto the next scam.

But it is difficult to follow the history of these companies. They disappear. The websites go. The stories go. In fact one of the better sources is on ASF where you might find the old discussions of these creative scams.

a cynic might suggest THAT is exactly why it happens .. a double whammy USUALLY ( but not always ) is a name change AND share consolidation , that really makes it hard for the novice .

 

[basilio]

a cynic might suggest THAT is exactly why it happens .. a double whammy USUALLY ( but not always ) is a name change AND share consolidation , that really makes it hard for the novice .

The point of being a novice is that you are easier to fleece
Honestly , well I don't think that is an appropriate word for many stock market practices.
Think of it as wild west where the winner is the one who can make the most money and how that is done is pretty well immaterial.

Anyway welcome to ASF. Fair to say that there is some excellent talent in this forum who are willing and capable of offering insights into investment opportunities as well as trying to make a buck out of trading.

Cheers.

 

[divs4ever]

since the Commsec Community is closing down at the end of the week , MAYBE there will be more , new members

am not very talented at trading , but i know that already and NORMALLY stick to longer term holds
i initially plan to hold a stock forever BUT can change my mind when new information arrives , and it is just sensible to take some profit ( the original investment cash )

so i would term myself an investor .. who takes passing opportunities

my prime focus is to create an income source for the rest of my life ( via div. income )

and boy last year did that get put to the test

 

[basilio]

am not very talented at trading , but i know that already and NORMALLY stick to longer term holds
i initially plan to hold a stock forever BUT can change my mind when new information arrives , and it is just sensible to take some profit ( the original investment cash )

so i would term myself an investor .. who takes passing opportunities

my prime focus is to create an income source for the rest of my life ( via div. income )

Good luck to you then Div.

With that philosophy you might be interested in checking out the FMG thread and VC's historical analysis of the stock. But as usual DYOR

 

[divs4ever]

i missed my target price on FMG several years back and had a second disappointment when management offered the interest-bearing equities to the internationals , i would have loved 8% return on FMG bonds/notes and Twiggy would have had the debt in $A ( not $US )

further more a crafty management might have offered to convert them into shares after a while , i think some local investors would been actracted by that

i would rather be holding FMG debt than ( big 4 ) bank debt currently
but for the record , currently , i have very little exposure to that sort of investment ( between 2011 and 2016 i was having a ball in that area )

with FMG now , i wonder how to factor in political risk , after all the goodwill FMG has created in the past ( not management's fault they are in the middle of a soft trade war )

but thanks will check that ( and elsewhere later ( i haven't been lurking outside before i joined so i have a LOT to explore )

 

[Joe Blow]

since the Commsec Community is closing down at the end of the week , MAYBE there will be more , new members

Please feel free to point them in this direction. We are always happy to welcome new members, expecially in circumstances where an existing platform is shutting down and there will be people searching for a new home to continue discussing ASX-listed companies and financial markets.

 

[divs4ever]

i can only hope they come , some are class acts , and have plenty of experience behind them

cheers

 

[Value Collector]

They consolidate to lift the share price, it makes the company look like it is doing better and also some larger investment companies only buy into shares above a minimum entry price.
Also for the casual observer, the consolidation doesn't show up, so wow last time I looked they were only x now they are triple that. l

Until you as a shareholder experience a Consolidation of shares you will never be able to appreciate the feeling of being legally robbed of multiple thousands of dollars. It works this way. Buried in one of the annual reports or interim reports there will be a notification of a motion for shareholders to vote on a Consolidation of the company's shares. As most of the people voting are the ones who have a self interest in the Consolidation, the motion will always be passed. Then a little while later you will get a letter saying your share holding in the company has diminished to a fraction of your original holding leaving you on many occasions holding a non-marketable parcel or very close to it if you don't get out fast.


Consolidations confirm failure


Shareholders often receive letters from their directors like this:


“We are pleased to announce that following shareholder approval received at the General Meeting we have completed a 50-for-1 share consolidation. This consolidation will deliver a simplified and more efficient share capital base and reposition the stock for broader investor appeal.”


More appropriately the letter from directors should be couched thus:


“We very much regret having to advise that for every fifty shares you once owned in BadlyManaged Limited, you now have one. This savage reduction reflects the underlying diminution in the value of your shares that has already taken place during our stewardship of BadlyManaged. If your shares are still worth anything it would be in your best interests to sell them now and invest the proceeds in a company in the ASX 200.”


Here is a classic:


If in 2006 you bought 50,000 shares in Antilles Oil and Gas NL (formerly Advance Energy Limited), they were worth $14,500 at the closing price of 29 cents on 2 June 2006. The value of your shareholding gradually dwindled and by May 2014 the shares were trading at a tenth of a cent and your 50,000 shares were worth about $50. In June 2014 the company completed a 1 for 60 consolidation. Your new holding of 834 shares traded around the three tenths of a cent mark and was worth in total about $3. A couple of months later the company again consolidated your shares 1 for 80. Your new holding of 11 shares was and is worth nothing.



The whole idea behind a consolidation is to try and restore the company’s share price into the investment grade range and thus make it more appealing. Don’t be fooled, the damage has already been done. http://www.investogain.com.au/companies/corporate-actions

There are an enormous amount of these Consolidations happening all the time and it isn't just happening to small speculative stocks, it can be major mainstream stocks and they can take out life savings from people who can least afford it......

quote: "I am a self-funded retiree in my 80s. In September 2015 I bought 50,000 shares in Ten Network Holdings at $0.1925 each. In October 2015, I bought another 50,000 at $0.1925 each and, in November 2015 I was allotted 18,919 shares at $0.15 each, taking my total to 118,919 shares. On January 21, 2016, I received a statement from Ten Network advising me that due to consolidation of capital on the basis of 10 into 1, I now hold 11,892 shares only. The price of the shares on January 21, 2016, was quoted as $0.14 each, which means my capital was reduced by $107,027 overnight. I was never notified by the Ten Network that such action was going to take place. Shouldn't the shareholders have been notified prior to such action? Is such action legal, or even ethical, taken by the network without discussing it with the shareholders first? I would appreciate it if you can clear up this matter for me, as I am not well-versed with share trading. T.O."
https://www.smh.com.au/money/invest...onsolidated-is-that-fair-20160906-gra48o.html

Eventually the price of TEN diminished to nothing and went into receivership and then.....
On the 10 November 2017, leave was granted to the receivers and managers of TNHL to transfer shares in TNHL pursuant to the deed of company arrangement to CBS Australia or its nominee. CBS Network Ten BV was nominated as the proposed transferee. Shareholders in TNHL did not receive any payments for the transfer of their shares.

There goes an 80 year old gentleman's $100,000 plus and probably quite a lot more just like him. It would be interesting to know the $ value of that particular Consolidation of ordinary shareholders investments. The rich get richer and the poor get poorer, and the worst part, nobody cares.

We must begin to protect ourselves and each other as best we can. We need to educate ourselves. If we want to buy a share, we need to check to see if it has had a Consolidation and if it has, best advice is to move on. Go through all the ASX notifications for all the years the stock has been listed. Hunt out the Consolidations if there were any. You can find out how long the stock has been around by looking up delisted.com.au http://www.delisted.com.au/ They list all shares not just those which have been delisted. It gives you the company name changes and Directors names and a host of other very valuable information.

Share consolidations do not affect the value of a company at all.

If you “Lost money” in a share consolidation it would be because the company was already on the way down any way.

If you owned 1% of the company before the share consolidation you will own 1% after it, Yes you own less shares, but so does everyone else, the company is the same company and you still own the same size piece.