Reverse Stock Split (too risky)
Micron Solutions, an OTC-listed medical device component manufacturer, intends to go private and wants to reduce the number of registered shareholders via 1 for 1000 reverse split. All shareholders with 999 shares or less will be cashed out at $1.5/share vs the current price of $1.37. Thus, an upside of $130 if all goes as planned. Although at a quick glance, this may look like a relatively ‘risk-free’ arb opportunity for odd-lots, I think there is a substantial risk that either the transaction gets canceled altogether or the reverse split ratio gets adjusted (for examples of previous cases of reverse splits cancelations/adjustments see this post).
The company is already listed OTC and does not report with SEC – any cost savings from this transaction are likely to be minimal. There is no information on how much the planned reverse split is going to cost. Assuming all of the post-announcement trading was driven by the buying of odd-lot accounts, the company would already have 250k of incremental shares to cash out. More odd-lot accounts are likely to pile in the coming weeks/months and the total amount required to cash out these arbitrageurs might become significant vs MICR’s market cap of $5m. Management owns 37% of MICR and I doubt they are interested in spending a substantial portion of the company’s capitalization to cash out minority shareholders.
The latest available financials are from Mar’23 – the company had only $7k of cash coupled with $440k in undrawn revolver. In May’23 the company raised $250k by issuing subordinated loans to entities affiliated with three MICR’s directors. It is not clear how much liquidity is currently available. MICR intends to partially finance the costs of this reverse split by issuing more debt to the same director-affiliated entities.
Altogether, too many unknowns and uncertainties to call these $130 as ‘risk-free’.
Is there also the same issue as SFE here – of registered shareholders vs street name?
I think this means it’s not the same as SFE, so it would go through in “street name” whereas SFE would not. I’m no expert by any means though.
The Company intends to treat persons who hold shares of its Common Stock in “street name,” through a bank, broker or other nominee, in the same manner as persons who hold shares of our Common Stock in their own names. Banks, brokers or other nominees will be instructed to effect the Stock Splits for their customers holding our Common Stock in “street name.”
Micron provided an update that seeking shareholder approval and OTC / FINRA filings take longer than expected. Split is now expected to be done as soon as possible this quarter.
The wording might make a difference – “as soon as practicable” – maybe it’s never practicable as DT hinted.
Despite my concerns, the transaction has been completed. Just yesterday, the company carried out the reverse split. Anyone holding onto the stock since the SSI post would have made $130 on the odd lot position. But seemed too risky anyway.
https://finance.yahoo.com/news/micron-solutions-inc-announces-completion-212500004.html