Steel Connect (NASDAQ: STCN) stock should rise 933% at the open today. That's if everyone remembers all the details of this fairly complex deal. We should note that this is all an entirely nominal change in price - no real prices will be harmed in the making of this adventure.
The background is that “Steel Connect, Inc. is a holding company with a wholly owned subsidiary, ModusLink Corporation, which serves the supply chain management markets.” It's not a particularly big player, revenue around the $50 million a quarter mark, but it does generally make net profits on that. That is, nothing particularly wrong with it, just a small company, a small player. Market capitalisation is around the $50 million sort of size as well.
The big fun and interest is that it has very large past losses, which then translate into potential tax credits for the future. There is a market in these but it's a complicated one. The only real potential buyer is Steel Partners, who already own 50%. But that idea was tried out back last fall and didn't complete. SP weren't willing, it seems to allow enough of the benefit to flow through to SC stockholders.
Steel Connect stock price from NASDAQ
The particular problem right now is that the share price is down below that $1 minimum bid price for NASDAQ. This is a cultural thing - Americans think that penny stocks are somehow disreputable. So, you can't be on a major exchange as a penny stock. The answer is known, you have a reverse stock split. Just declare that what were this large number of shares are now this smaller number of shares that make up the company. This raises the nominal price of each piece of stock.
Exactly what Steel Connect is doing: “announced today that it will effect a 1-for-3,500 reverse stock split (“Reverse Stock Split”) of its common stock, par value $0.01 per share (the “Company Common Stock”), followed immediately by a 375-for-1 forward stock split of the Company Common Stock” The nett effect of the two is a reverse stock split of 1 for 9.33.
No, they've not explained why they want that final ration but that's what they do want. So, that's the nominal price rise at open this morning - 933%. As ever we need to note that it is just nominal. The real price change will be however much the price changes by not 933%.