Fresh from striking a tentative agreement with the Teamsters, YRC Worldwide
The trucker specializing in less-than-truckload shipments will execute a 1-for-25 reverse split on Friday. Every 25 shares will be exchanged for a single new share at a price that is 25 times higher.
For example, based on last night's close of $0.32 a share, every 25 shares would be replaced with a single share at $8. It's a zero-sum game, but it has a funny way of replacing speculators with serious investors.
Shares of YRC took a hit in after-hours trading, but that's just the penny stock chasers bailing. If YRC is able to take advantage of driver concessions to steer its way back toward profitability, the company will be more valuable in the future.
YRC didn't really have much of a choice here. It was about to be delisted by NASDAQ
The problem with YRC is the same one that keeps Sirius XM Radio
In YRC's case, it has a whopping 1.2 billion shares outstanding after its highly dilutive recapitalization efforts over the past year. A year ago, YRC only had 59.5 million shares outstanding. Sadly, the reverse split will be essentially undoing the dilutive share damage, as YRC expects to have roughly 48 million outstanding common shares after Friday's move.
Ignore today's initial repulsion. YRC's fundamentals are better than that. FedEx's
Pulling in reverse isn't the end of the road, YRC shareholders. Sometimes it's necessary to back out a bit before heading to where you're going.
Are reverse splits good or bad? Share your thoughts in the comment box below.
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Longtime Fool contributor Rick Munarriz misses the Tonka trucks he used to play with when he was little. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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