Southwest airlines leveraged buyout issue

[igneousy2]

What effect would a reverse stock split have on share price and market cap? I've never experienced one. Is it even possible? If it is, would that help decrease the attraction corporate raiders might have to SWA?

The rumor I keep hearing is that there will be a significant increase in debt...one way or another.

In theory, A reverse stock split has the same effect as a regular stock split...nothing. The important number isn't share price it's market cap and in any kind of stock split the market cap does not change.

Sometimes companies reverse split stocks to avoid de-listing from an exchange.

Lots of private investors are wary of "cheap stocks", most hobbiest think that a $5 stock is cheap and a $300 stock is expensive.

Also, in financial reports it sounds better on the news when your company earned $4 per share vs. $1 per share.

Stock price has nothing to do with the possibility of a hostile takeover, $5 billion worth of stock is $5 billion worth of stock no matter how you divide up the pie.

Later

 

[ivauir]

In an LBO situation, SW would be disassembled and sold off. Since it has no debt and a poor earnings vs revenue stream(it's an airline), the assets are more valuable than the company itself. Management is valuing the company at $20+ billion, but the major wall street players say $7-10 billion based on performance. It won;t be hard to get a loan for $7 billion when you have at least $14 billion in assets and growing.

A great idea! What assets does LUV own? Oh Yeah - airplanes! Who had money to buy 500 737s? SWA! Its a great idea, do a hostile take over of LUV. Strip the company of all of its cash and then sell the assets to Southwest Airlines because they have a lot of cash and want to buy more 737s ....

I think I'm begninning to see why GK isn't worried about this.