Flirting With Delisting


Charter Communications stock has been battered in the past month, dipping below the $1-per-share benchmark for 15 consecutive days as of March 25, leaving the possibility that the thinly traded stock could be delisted by the NASDAQ stock exchange.

According to NASDAQ regulations, stocks on the exchange must maintain a price of at least $1 per share. If the stock dips below that benchmark for 30 consecutive business days, the exchange can take action to remove it.

Since March 4, Charter stock has traded between 78 cents and 99 cents per share. The stock closed at 96 cents each on March 25, the 15th straight business day it has traded below $1 each. At its current pace, Charter will cross the 30-day benchmark on April 15.

This wouldn't be the first time that Charter has flirted with a delisting — in April 2005, it said, it received a delisting notice from NASDAQ because it fell one director short of an exchange minimum requirement that at least three independent directors serve on its audit committee. It avoided that delisting by naming former TechTV chairman and CEO Larry Wangberg and David Merritt, managing director of Los Angeles-based investment bank Salem Partners to the committee. Wangberg was later replaced by a technology consultant, RANND Advisory Group managing director Nathaniel Davis.

In 2003, the company went 21 consecutive business days — between March 3 and March 31 — under $1 per share, before clearing that hurdle on April 1, 2003.

If the stock does not rebound by April 15, that only starts what could be a lengthy process. According to NASDAQ, once a stock has traded under $1 per share for 30 straight days, it receives a notice from the exchange giving it 180 days to get up to standard. Companies may also receive extensions if they either have a net income of $750,000 (Charter does not); stockholders equity of $5 million (ditto); or a total market value of $50 million. With about 398 million shares outstanding, Charter well exceeds the final requirement, with a market cap of about $350 million.

Charter can also have a late-inning rebound to avoid a delisting notice, which also wouldn't be out of the question. On March 19 the stock climbed 8 cents to 91 cents each, a little more than a week after it said that it would refinance some debt.

Miller Tabak media analyst David Joyce said that while he does not believe that Charter is in imminent danger of a delisting, it is a possibility.

“In a recession, fear is how all of the stocks trade,” Joyce said.

Joyce said he has frequently talked to investors about having a bifurcated discounted cash-flow valuation for Charter — one that would concentrate on the near term and focus on its losses, setting the stock at a $1.50 to $2 valuation; and one that focused on long-term growth prospects, which would push the valuation north of $4 per share.

“I don't think it is anything to be concerned about,” Joyce said of a possible delisting. “They can continue to petition for extensions. There are some investors that have in their charter's restrictions on owning stocks under $1 or $5 per share. We're not out of the woods yet on the recession and the fearful period.”

Delisting doesn't mean that a stock is no longer traded. Typically, delisted stocks are traded on the over-the-counter bulletin board — an electronic exchange that has less stringent reporting requirements.

Being taken down from an exchange can have other ramifications, though: It can make it more difficult to raise money and could trigger debt covenants that would result in creditors calling in loans. A delisting could also affect a company's credit rating, meaning that interest expenses would likely increase. Another downside: Usually, big institutions and mutual funds are prohibited by their own bylaws from trading bulletin-board stocks and some may even require them to liquidate their existing positions entirely, which could further drive down the price of the stock.

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