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Blockbuster Shares Fall on Reverse Split Fears

30 Mar, 2010 By: Erik Gruenwedel

Next to bankruptcy, nothing unsettles investors more than a reverse stock split, which financially challenged Blockbuster said would be presented to shareholders at the DVD rental giant’s annual meeting May 26 in Dallas.

The news, announced March 29 by CEO Jim Keyes, sent Blockbuster’s penny stock March 30 down more than 8% to 25 cents per share in midmorning trading. The company's stock has fallen about 20% since the market closed March 26.

Blockbuster, which earlier this month said it faces bankruptcy unless it can obtain breaks from lenders and studios, said the New York Stock Exchange informed it that its market capitalization had fallen below $75 million over a 30-day trading period, in violation of the board’s rules.

As a result, Blockbuster said it would seek to artificially inflate the value of its penny stocks by reducing the number Class ‘A’ and ‘B’ shares outstanding.

The company now has 45 days to bring the value above $75 million or face delisting from the trading board.

“We intend to promptly submit a plan to the NYSE, which will outline the proactive steps we plan to take to remedy the company’s noncompliance by September of 2011,” Keyes said, in a statement.

Edward Woo, analyst with Wedbush Morgan Securities in Los Angeles, said that while the reverse split would help Blockbuster regain some aspect of NYSE compliance (minimum $1 stock price), the fundamental outlook for the company remains very weak.

Woo said the reason the stock price remains so low is that most investors believe Blockbuster will file for bankruptcy in the near future — which he said wouldn’t be such a bad thing.

“[Blockbuster] should start over and take a second chance at things with a cleaner slate,” Woo said.

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