With its stock trading at pennies per share, Westwood One management had already indicated that a reverse stock spit was likely following its recent financial restructuring. Shareholders are now being asked to vote on a reverse split which would give them one new share for each 65 that they currently hold.
The date of WW1’s special shareholders meeting has not yet been set. However, the preliminary proxy spells out five items to be voted on.
First, shareholders are being asked to increase the number of authorized shares from 300 million to five billion. That would provide the company with enough shares to accommodate the already completed financial reorganization which involved a swap of debt for cash and new preferred stock. As a result of the recapitalization, The Gores Group owns approximately 74.8% of Westwood One’s equity with respect to its preferred stock and WW1’s common stockholders own approximately 2.5% of the outstanding equity of the company.
Item two is the one for 65 reverse stock split, which would immediately reduce that five billion authorized shares to around 77 million.
Item three would define “continuing directors” in the Certificate of Incorporation, which currently is undefined.
Items four and five would change the threshold for amending the Certificate of Incorporation in the future from the current requirement of 75% shareholder approval to a simple majority vote. That would make it easier for The Gores Group, as majority shareholder, to make changes as it sees fit.
RBR/TVBR observation: There had been online speculation that the ratio might even be one for 100. Mathematically it really doesn’t matter. The value of a single share is the value of the total equity divided by the number of shares. Ah, but then there’s the psychological factor. One for 65 doesn’t sound as bad as one for 100. The only real advantage of a reverse split is that it lifts the trading price above the $5.00 penny stock barrier, below which many pension funds and mutual funds are not permitted to own stocks in their portfolios. At the recent price of 10 cents per share, the reverse split would put Westwood One stock at $6.50 per share. The issue then becomes whether operating performance can keep the stock price at that level, or, shareholders hope, push it even higher.