Novo Nordisk (CPH: NOVO-B) (OTCPK: NONOF) (NYSE: NVO) shares will drop 50% at the open today. This is not the beginnings or even result of some disaster, far from it, this is a symptom of success. The stock is simply getting “too expensive” therefore something must be done about that. However, what complicates is that the Danish quotation changes today. That’s the CPH quote there. The OTC quote is a broker organised trade of that Danish stock in New York. So, that will also change today. However, the NYSE quote, NVO, is the company’s own ADR. This doesn’t change until next week.
All of which is a bit confusing but that’s the way they want to play it: “Novo Nordisk’s B shares are listed on Nasdaq Copenhagen in trading units of DKK 0.20 and its ADRs that equals B-shares of DKK 0.20 are listed on New York Stock Exchange (NYSE). In order to secure liquidity for both the Novo Nordisk B shares and American Depositary Receipts (ADRs) and bring price levels in line with market practice for especially the ADRs, the Board of Directors has decided to split the trading units in a two-for-one ratio.The trading unit of the Novo Nordisk B shares listed on NASDAQ Copenhagen will be changed from DKK 0.20 to DKK 0.10 as of 13 September 2023. The ADRs listed on the New York Stock Exchange (NYSE) will similarly be split as of 20 September 2023 to ensure that the ratio of B shares to ADRs will remain 1:1.”
Novo Nordisk share price from Google Finance
One implication of this is that the three quotes are going to trade out of line with each other for this coming week. The ADR (NVO that is) will look twice as expensive as it should be compared to the other two quotes.
As an aside, this is a lovely natural experiment for anyone who wants to study the number illusion - the idea that we humans don’t deal with numbers and prices quite right. It’s possible that the ADR price will wander a bit as a result of this. How much it does would be an interesting little test of the idea.
As to why this is being done it’s simply fashion these days. The success of those covid vaccines has driven the share price up so much that some now consider it “too expensive” the solution to which is that 2 for 1 stock split. Just split the shares in two and halve the price. Novo Nordisk’s worth the same amount as before but the shares look “cheaper” - that number illusion again.
