Time Warner Inc. will hold a special meeting of shareholders on Jan. 16 to vote on a proposed reverse stock split that would take effect once the company separates its Time Warner Cable business.
Time Warner announced plans for the separation in May.
In a conference call with analysts to discuss its third quarter results Wednesday morning, CEO Jeff Bewkes said the separation was on track for early next year.
In documents filed with the Securities and Exchange Commission Wednesday, Time Warner said the reverse split ratio would be either 1-for-2 or 1-for-3, as determined by its board of directors.
The proposal was based on the expectation that following the separation of the cable unit, the market price and trading ranges for Time Warner stock may be significantly lower than their current ranges.
“The board of directors believes that effecting a reverse stock split, resulting in fewer shares of the Time Warner common stock being outstanding, is likely to increase the market price and improve the marketability and liquidity of the Time Warner common stock,” the company said in the filing.
Reverse splits are a common practice and are usually done to boost the value of the shares. In a reverse split, the number of shares outstanding changes, but the market value remains the same. So a stock that is priced at $2 per share with 12 million shares outstanding becomes a $6 stock with 4 million shares outstanding in a 1-for-3 reverse split.
In the SEC filing, Time Warner said that the reverse split will take place near to the time of the cable separation. The Jan. 16 meeting will only be to authorize the reverse split, the actual transaction will take place at the discretion of the board.
Time Warner shares were down 77 cents each (7%) in afternoon trading to $10.06 each; while Time Warner cable shares dipped 69 cents each (3.3%) to $19.87.