From: Linda (joelinda1@home.com)
Date: Fri Oct 20 2000 - 19:43:14 PDT
Tom Whore wrote:
> This struggling medical web site is about to start a newish trend in the
> dogishdotcoms tango. In order to keep themselves on Nasdq they are about
> to do a 1 for 8 reverse stock "split". You happen to be holding 8 shares
> at .25 cents, you will be holding 1 share at 2 bucks. Wohoo, your rich.
> No word yet if there will be discounts for heart medication for all
> investors.
Easy. PlanetRx.com.
http://www.redherring.com/investor/2000/1013/inv-planetrx101300.html?id=yahoo
PlanetRx struggles to keep its head above water
By Lisa Meyer
Redherring.com, October 13, 2000
In these days of Nasdaq heavy bleeding, troubled dot-coms are coming up
with innovative Band-Aids.
The most recent duct-tape fix comes from PlanetRx.com (Nasdaq: PLRX).
With its stock facing delisting from the Nasdaq for trading below a
dollar a share, PlanetRx.com, an online drugstore, announced a proposal
for a 1-for-8 reverse stock split to boost its share price.
The South San Francisco-based company currently trades at 34 cents a
share and hasn't traded over $1 since the end of July. PlanetRx.com
went public a year ago with a $16 offering and saw its shares close at
$26 the next day. The stock hasn't reached that high since.
Typically, when a company announces a stock split, the goal is to lower
the share price. For example, if a company with 25 million shares
trading at $50 a share executes a 2-for-1 split, the company winds up
with 50 million shares trading at $25. The value of the company stays
the same. With a reverse split, companies actually decrease the number
of shares outstanding and as a result, artificially boost the stock
price per share. Once again, the value of the company does not change.
In PlanetRx.com's case, based on Thursday's closing price, the
company's share price would climb from about 34 cents a share to $2.75
a share if the reverse split is approved. PlanetRx.com has about 51
million shares outstanding, so the consolidation would reduce that
total to 6.375 million shares.
THE SEARCH FOR THE CURE
In late August, PlanetRx.com announced that it would move its
headquarters away from the high rents and expensive labor of Silicon
Valley to Memphis, Tennessee, home of its new distribution center.
The company said that the move would reduce its cash burn rate by 50
percent by saving on not only rent and labor costs but also
communications and travel. Between 40 and 50 of the 85 jobs
currently in South San Francisco will be lost with the move,
joining 70 other PlanetRx.com employees who were laid off in June.
The company expects to cut costs from $13 million in the first
quarter to $6.5 million in the third quarter. PlanetRx.com is
scheduled to announce earnings on Wednesday of next week.
Adding to the company's woes, PlanetRx.com recently lost its chairman
to a venture capital firm, and its CFO has resigned. Currently without
a brick-and-mortar suitor, the online pharmacy sector faces competition
from wealthier dot-coms, including Drugstore.com (Nasdaq: DSCM) and
CVS.com (NYSE: CVS).
PlanetRx.com did recently receive a $50 million infusion of equity
financing from Alpha Venture Capital, and its CEO is not ready to wave
the white flag just yet.
"We've renegotiated deals with America Online (NYSE: AOL) and
iVillage.com (Nasdaq: IVIL) and pulled away from offline marketing
programs," says PlanetRx.com CEO Michael Beindorff. "We have reduced
our burn rate dramatically in the last couple of months. We've put
ourselves in a viable position for the long haul. Our customer
acquisition costs have come down dramatically. We will continue
to see our business grow, but at a slower, healthier rate."
But the company's market capitalization is $19.3 million, well below
the $35 million requirement for the Nasdaq SmallCap Market and the
$50 million requirement for Nasdaq National Market.
A TROUBLING TREND
It comes as no surprise that the Nasdaq sent PlanetRx.com a notice
in mid-September saying that the market operator would reëvaluate the
company's inclusion, according to a company report filed with the
Securities and Exchange Commission. The Nasdaq warned that if
PlanetRx.com's stock closed at less than a dollar for any ten straight
days before December 14, the company would be booted.
The proposed reverse split requires a 50 percent approval from
shareholders, and if it is voted down, it could be disastrous news
for the company. Losing the Nasdaq listing would decrease
PlanetRx.com's exposure to traders, possibly creating "an adverse
effect on the liquidity of our common stock," PlanetRx.com said in the
filing.
PlanetRx.com is not alone in finding crafty ways to stay in the
investor spotlight, as many Internet stocks are treading water and
trying to reshape their business models. Also trading below a dollar,
Musicmaker.com (NYSE: HITS), an online music company, announced a
10-for-1 reverse stock split in mid-September. It, like PlanetRx.com,
is trying desperately to cut costs.
Musicmaker.com recently laid off 30 percent of its staff. CEO
Raju Puthukarai said in a company press release, "This reorganization
plan will reduce our cash burn to approximately $10-$12 million per
year." According to its most recent quarterly filing with the SEC,
Musicmaker.com reported that it had cash and cash equivalents of
$35.7 million. It will be interesting to see if the split, which
has yet to take effect, helps Musicmaker.com. Its stock closed on
Thursday at 34 cents a share, a far cry from the high of $28.13 per
share that the stock hit the day of its IPO in July 1999.
IS THAT A SHAKEUP OR A DEATH RATTLE?
As more Internet stocks fall below the $1 price level, expect more
companies to try the reverse stock split as a way to remain listed
on the Nasdaq. TheGlobe.com (Nasdaq: TGLO), Beyond.com (Nasdaq: BYND),
EMusic.com (Nasdaq: EMUS), and DrKoop.com (Nasdaq: KOOP) are just a
few examples of former dot-com hot shots that are now basically penny
stocks.
"As we begin to crawl out of the dot-com slump, we will see a lot
more dot-coms do reverse splits to get their bid prices above $10,"
says Peter Sealey, professor at the Haas School of Business at the
University of California, Berkeley. "Ten is a magic number. It looks
attractive to investors."
But manipulation of stock prices through reverse stock splits could
fool the unwary investor. A sudden jolt in a price doesn't
necessarily mean a rally. Rather, in today's sickly market, it
could be just a reverse split -- or the last breath of a dying
company.
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