Road funding

It begins: reverse stock splits for collapsed SPAC and IPO stocks. Bankruptcy for others

Stock splits prevent them from being delisted. But some didn’t even go that far and filed for bankruptcy, like, WOW that was fast.

By Wolf Richter for WOLF STREET.

Hippo Holdings – one of the “insurance tech” unicorns that went public via a merger with a SPAC and whose shares subsequently crashed – announcement on July 20 in a proxy statement indicating that it would hold a special meeting of shareholders on August 31 via live webcast to seek shareholder approval for a reverse stock split “in the range of 1 for 20 to 1 for 30”.

On July 19, Hippo revealed that it had received a delisting notice from the New York Stock Exchange because the stock price was below $1 for more than 30 consecutive trading days. And to push the stock price above the delisting line, the company said it would reverse the stock.

This is Hippo’s stock [HIPO] since announcing the merger with a SPAC in March 2021. The merger at a “valuation” of $5 billion was approved by the shareholder on August 2, 2021. Less than a year later, there is the reverse stock split. Stocks closed at $0.80 today, down 93%, and the whole thing was a giant horror show at the end of the craziest stock market bubble ever, as my column shows , Imploded Stocks.

If Hippo undertakes a 1 for 20 stock split, shareholders of record on July 18 will see their ownership reduced by 20. If I have 1,000 shares of Hippo before the stock split, I will have 50 shares after. And the shares, instead of being worth $0.80, will be worth an instant 20 times more, $16. In terms of dollars, I even go out for a while.

What happens next in the market, as we learned during the dotcom meltdown, is that stocks often continue to sink because there is now a lot more room below to sink. But at least it avoids radiation for a while.

If the company can’t figure out how to get positive cash flow, and therefore continues to burn cash, it will have to get new funds that it can incinerate, and that’s very difficult in the current climate. . Or maybe another company will buy it for leftovers.

If those two options don’t materialize, then one day after all the money has been burned, the business disappears and everyone had a great time at the party except the investors who ended up hold the vomit bag.

This $1 delisting threat hangs over many companies that have recently gone public via a merger with a SPAC or via an IPO. And there will be plenty of debarment notice disclosures and plenty of reverse stock split announcements — if the companies even get that far. And many won’t and will file for bankruptcy instead. And some have already done so.

Take advantage of technology [ENJY], a delivery startup with an extra-fancy website, is one of those that didn’t even manage to do a reverse stock split. It was released via a SPAC in October 2021, then went to hell almost in a straight line – practically violating WOLF STREET’s saying that “nothing goes wrong in a straight line”.

On June 17, she revealed that she received a disbarment notice. On June 30, she revealed that she had filed for bankruptcy. Right now, the stock is damned, has already been delisted and is trading over-the-counter at $0.12. It will eventually drop to zero and end users will have to ask their brokers to remove the stocks from their account if they get tired of looking at them after a few years.

Electric last mile (EV conversions) have never done a stock split either; it filed for bankruptcy in June, a year after its SPAC merger, and the stock is doomed, now at $0.12 OTC, and will go to zero.

digital travel (crypto platform), which went public last year with the main listing in Canada, has also never had a reverse stock split. On July 6, it filed for bankruptcy in the United States after freezing customer deposits.

Sofi Technologies [SOFI] last week has already secured shareholder approval for a potential stock split, should the company decide to go that route. The company started as a student loan operator and stock trading platform and then branched out into crypto trading. In early 2021, it merged with one of Chamath Palihapitiya’s SPACs. The shares had peaked at $28.26 in February 2021, giving it a market capitalization of around $25 billion. Since then, shares have plunged 75% to $6.97. And $18 billion in market capitalization is gone. In the first quarter, the company lost $115 million, but shares remain well above the write-off line for now.

Metromile [MILE], another unicorn AI insurance tech SPAC that lost a ton of money, this one specializing in auto loans, is a strong candidate for a delisting notice and a stock split. It is currently trading at $1.05 and has traded as low as $0.75. If it trades below $1 for 30 days, be prepared:

Among our other imploded stocks, SPAC and IPO heroes that have at least temporarily fallen near or below $1 are:

  • vroom [VRM] (used car dealership)
  • Technologies of change [SFT] (used car dealership)
  • Cazoo [CZOO] (used car dealership in the UK). Currently at $0.57, a new low. Losing money, cutting jobs, all that.
  • Velodyne Lidar [VLDR] (EV Technology)
  • Electrical Center [CENN] (Australian lingerie brand that turned to electric vehicles)
  • Metal desk [DM] (3D printing)
  • News Feed [BZFD] (online edition)
  • Dave Inc. [DAVE] (Mark Cuban backed fintech personal finance), now at $0.68.

A stock split does not solve the business viability problem. This only resolves the radiation threat at least for a little while. If the company fails to pull itself together and generate positive cash flow, it will still go under and the stock will still drop to zero, even after the 1 for a gazillion reverse stock split.

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