Bombardier, Inc. (TSX:BBD.B) stock has plunged to penny stock levels and the company could soon be kicked out from the Toronto Stock Exchange (TSE). But according to sources close to the matter, the company is hatching a plan to save Bombardier stock from being delisted.
Since entering 2016, Bombardier’s stock price has plunged more than 34% to just CA$0.88. If its share price stays at these levels, the stock could get ejected from Canada’s benchmark S&P/TSX Composite Index.
The TSX Composite Index reviews its components on a quarterly basis. To qualify, a stock needs to have a volume-weighted average price of CA$1.00 over the three months prior to the review. The next review will be at the end of February. It will cover the three months from December to February.
If Bombardier gets removed from the index, its stock price could face even more downside risk. This is because the index fund would start unloading its Bombardier shares.
According to The Globe and Mail, sources close to the matter have said the reverse stock split was already approved by the board of directors, even before the stock dropped below the CA$1.00 mark. One of the sources also said that Bombardier will announce the stock consolidation plan when it reports fourth-quarter results on February 17. (Source: “Bombardier Plans to Reverse Stock Split as Shares Dive: Sources,” The Globe and Mail, February 3, 2016.)
The company hasn’t been doing that well in recent years. Last January, Bombardier suspended work on its “Learjet” unit’s flagship model, the “Learjet 85,” due to weak demand. This resulted in a pretax charge of approximately $1.4 billion and around 1,000 job cuts. Now, its new “C Series” 100–150 seat passenger jets are struggling to find buyers. (Source: “Bombardier Plans to Reverse Stock Split as Shares Dive: Sources,” The Globe and Mail, February 3, 2016.)
In theory, a reverse stock split does not change the company’s value. Today, the company’s market cap is a little more than CA$2.0 billion. Sources did not say how many old shares would equate to one new share after the stock consolidation.