After issuing more shares to sell a majority stake to a Chinese firm, Enfield solar parts manufacturer is considering a reverse stock split in order to remain compliant with the New York Stock Exchange and avoid penny stock status, according to the company’s presentation to investors.
STR issued 27 million new shares of stock in order to give a 51 percent ownership stake to China-based Zhenfa Energy Group Co. for $21.7 million. STR’s board told its investors the deal was the best alternative to other options that included liquidation of the entire company, and it is asking investors to approve the Zhenfa deal.
Because the deal more than doubled the amount of outstanding STR shares and decreased the value of each share of stock to 78.4 cents, the company runs the risk of having the stock delisted by the NYSE because its value is below $1 per share.
To rectify the situation, STR said it is considering reducing the overall number of shares through what is known as a reverse stock split. This will get the per share price back above $1 and avoid the delisting. If the stock were delisted, it would be considered a penny stock.
Having the STR stock listed on the NYSE makes it more attractive to institutional investors, so it is advantageous to the company to consider the reverse stock split, the company said in its presentation.
