Palm Inc. held its annual shareholder’s meeting yesterday and approved a plan proposed in July by its Board of Directors to do a reverse stock split. This will decrease the number of shares available and thereby increase the value of each individual share.
Today, the company’s Board of Directors established a ratio of 1-for 20. In a 1-for-20 split, a shareholder who owns 1,000 shares now valued at 66 cents each would own 50 shares, each worth $13.20. Note that the total value of the person’s shares doesn’t change. Palm common stock will begin trading on a reverse-split basis on October 15.
Palm is planning to split its PalmSource subsidiary off in the next few months. This will almost inevitably lower the share price of the remaining company, which isn’t very high to begin with. By doing a reverse stock split, the company can raise its share price.
When PalmSource is split off from Palm, shareholders will receive shares of PalmSource for each share of Palm owned on the record date. After the distribution of PalmSource shares, Palm shareholders will own shares in both companies.
This decision did not meet with Wallstreet’s approval; Palm’s share price finished the day yesterday down almost 11%. Reverse stock splits aren’t popular with many investors because they see them as a move of desperation. Eric Benhamou, Palm’s Chairman and CEO, addressed this at yesterday’s meeting, saying that companies who did reverse stock splits and fixed the underlying problems in the company afterwards saw their share prices rise. He used Iomega as an example.
Also at yesterday’s meeting, shareholders re-elected several members of the Palm board of directors, including Eric Benhamou and David Nagel, president and CEO of PalmSource.