JDSU Goes Through With Reverse Split

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Last December, the board of JDS Uniphase (Nasdaq: JDSU) approved a reverse stock split in the range of 1-8 through 1-10, and management made it clear that the transaction would only take place under certain conditions. Mainly, the business would have to achieve and maintain positive non-GAAP EBITDA (earnings before interest, taxes, depreciation, and amortization) margins, a sign of stabilizing operations.

Indeed, the company appears to have reached that target and is now going ahead with the reverse split (stock merge?). On Oct. 17, any JDSU stock you own will be converted into one-eighth as many shares with the ticker JDSUD, which will then revert back to trading as JDSU about 20 trading days later. Any fractional shares that result from the switch should be paid out in cash. The price of the stock, convertible notes, and stock options will multiply by eight, and you're left with the same cash value in JDSU stock as you had the day before. Assuming that the share price at the time of writing ($2.22) holds until then, the new shares should trade around the $17.76 price point.

Stock splits are usually not newsworthy to a Fool, as they amount to changing five pennies for a nickel, or the other way around. However, there are times when a split can have real effects on a stock's performance. This is one such case.

JDSU shares have traded below the magical $5 barrier for years, making it look like a risky penny stock. Staying there for too long will endanger the company's good standing in the Nasdaq (Nasdaq: NDAQ) set of rules, and could result in it getting booted down to the illiquid Bulletin Board market. What's more, many trading houses, mutual funds, and the like are not allowed to touch stocks trading at prices that low, which again hurts liquidity and market visibility. Finally, the market often behaves as a giant game of mass psychology. If you see JDSU trading at $2.22, Finisar (Nasdaq: FNSR) at $3.67, Coherent (Nasdaq: COHR) at $36.42, and Oplink (Nasdaq: OPLK) at $19.96, which ones look like toys to you? The capacity for taking things seriously seems to increase in lockstep with its market price.

So has JDS Uniphase really turned a corner worthy of newfound respect? The early signs are there, but only time will tell for sure.

For further Foolishness:

• Last year, Fellow Fool Nate Parmelee wondered who would buy JDSU at any price.
• Smash the Market
• Read what CAPS players think about this company.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like. Full disclosure is what holds the Fool together.