Sunday, January 15, 2012

Lee Enterprises Inc., with its back to the wall, faces a reverse stock split

(by contributor Mark Wilson, as part of his series on the troubles at Lee Enterprises and The Post-Star)

As a last-ditch effort to raise the price of its stock shares and stave off delisting from the New York Stock Exchange, the Iowa-based owner of the Post-Star has reached the point where it must now seek approval from shareholders for a reverse stock split. The move, if approved at the company’s annual meeting next month, would multiply the share price of Lee stock, automatically raising it above the NYSE’s one dollar delisting threshold, while decreasing each shareholder’s holding by the same multiple.

When the NYSE issued Lee the first of two notices of non-compliance last summer after the company stock’s per share price slipped below one dollar, it gave Lee six months to correct the situation. When that “cure period” expired last week with Lee still trading in the 70¢ range, it became clear that Lee had one remaining avenue to escape being removed from the exchange.

The NYSE’s Listed Company Manual, as provided by Judy Shaw from NYSE’s Media Relations division, allows non-compliant companies one final stockholder-approved remedy if all else fails:

802.01C Price Criteria for Capital or Common Stock

A company will be considered to be below compliance standards if the average closing price of a security as reported on the consolidated tape is less than $1.00 over a consecutive 30 trading-day period.

Once notified, the company must bring its share price and average share price back above $1.00 by six months following receipt of the notification. A company is not eligible to follow the procedures outlined in Paras. 802.02 and 802.03 with respect to this criteria. The company must, however, notify the Exchange, within 10 business days of receipt of the notification, of its intent to cure this deficiency or be subject to suspension and delisting procedures. In addition, a domestic company must disclose receipt of the notification by issuing a press release disclosing the fact that it has fallen below the continued listing standards of the Exchange within the time period allotted by SEC rules for the making of a filing with respect to Exchange notification of that event, but no longer than four business days after notification. A non-U.S. company must issue this press release within 30 days after notification. If the company fails to issue this press release during the allotted time period, the Exchange will issue the requisite press release. The company can regain compliance at any time during the six-month cure period if on the last trading day of any calendar month during the cure period the company has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. In the event that at the expiration of the six-month cure period, both a $1.00 closing share price on the last trading day of the cure period and a $1.00 average closing share price over the 30 trading-day period ending on the last trading day of the cure period are not attained, the Exchange will commence suspension and delisting procedures.

Notwithstanding the foregoing, if a company determines that, if necessary, it will cure the price condition by taking an action that will require approval of its shareholders, it must so inform the Exchange in the above referenced notification, must obtain the shareholder approval by no later than its next annual meeting, and must implement the action promptly thereafter. The price condition will be deemed cured if the price promptly exceeds $1.00 per share, and the price remains above the level for at least the following 30 trading days.

Notwithstanding the foregoing, if the subject security is not the primary trading common stock of the company (e.g., a tracking stock or a preferred class) or is a stock listed under the Affiliated Company standard where the parent remains in "control" as that term is used in that standard, the Exchange may determine whether to apply the Price Criteria to such security after evaluating the financial status of the company.

At the pit of the recession in June 2009, Lee’s board—faced with a similar non-compliance notice after its stock price slid below fifty cents—opted not to pursue a reverse split when the Exchange issued a general moratorium on delisting. No such amnesty is available to the newspaper publisher this time.

If and when the company brings its stock price back into compliance, Lee still faces a second non-compliance notice issued last August when its market capitalization (the share price multiplied by the number of outstanding shares) dropped below $50 million. The reverse stock split will do nothing to improve this number, as the increase in the share price will be balanced by the decrease in the number of outstanding shares.

It is a safe bet that Lee’s financial directors are hard at work on a plan to boost its market capitalization. The company’s first quarter report is due out Tuesday morning.


Mark Wilson said...

Lee's bankruptcy case is scheduled to go before a judge on January 23rd. On Friday, January 13th the IRS formally objected to Lee's prepackaged bankruptcy deal on the grounds that the US Treasury risked being placed at the back of the line of creditors for taxes owed. Document can be found at:

Stephen said...

The IRS just wants more time to ensure that they dont have any claims. Lee should have no problem changing the language as needed.

Stephen said...

And here it is later this same day...Lee's definitive request to conclude chapter 11 proceedings. They changed the language. The IRS should be happy as it pretty much says that no one affiliated with this chapter 11 in any way is allowed to use these proceedings to get out of paying taxes. The bottom of page 45.