RailWorks Corp.'s bid to remain listed on the Nasdaq stock market got a boost yesterday when the Baltimore County company's shareholders authorized a reverse stock split.
RailWorks officials are hoping that the reverse split will raise the company's stock price above the $5 minimum bid price required for listing on the Nasdaq.
The cash-strapped railroad and transportation services company considers maintaining the listing important to its efforts to attract new shareholders and keep those it already has.
A Nasdaq listing is favored by shareholders because it is generally cheaper and easier than trading shares on the non-Nasdaq, over-the-counter market, which tends to attract fewer buyers. Stocks not listed on a major exchange also are less likely to attract coverage by industry analysts, coverage that can increase investor awareness of a stock and improve the market for its shares.
Under the reverse split, shareholders will receive one share for up to 10 shares they own, depending on what rate of exchange John G. Larkin, RailWorks' chairman and chief executive, elects to implement.
In a reverse split, the value of a company's shares tend to increase in proportion to the number of shares exchanged.
For example, in a 1-for-2 reverse split, shares trading at $2 before the reverse split would be worth $4 afterward.
In a proxy statement filed last month with the Securities and Exchange Commission, RailWorks said it would aim for a post-split share price of between $7 and $9. RailWorks shares closed yesterday at $1.89 per share, up 9 cents.
The shares have been trading at below $3 since fall, when RailWorks announced a major restructuring in an effort to cut costs and reduce debt.
Nasdaq market officials agreed in March to give the company until May 18 to achieve a $5 minimum bid price or face losing its market listing. Company officials said in SEC filings that they would decide before that date whether to implement the reverse stock split.
One alternative would be to transfer the listing to the Nasdaq small-cap market, which allows a lower share price as long as companies maintain a market value of $35 million or more.
Analysts have said the reverse split could be good for the company if it means the stock stays listed on the Nasdaq. The measure would have little impact on the company's balance sheet.
RailWorks will report its first-quarter 2001 results Tuesday before the stock market opens.
The company reported a loss last year of $60 million, or $4.04 per share.