RailWorks seeks OK for reverse stock split

Company is attempting to lift its share price, keep Nasdaq listing

March 22, 2001|By Paul Adams | Paul Adams,SUN STAFF

Baltimore-based RailWorks Corp. will ask shareholders to approve a reverse stock split at its annual meeting May 4 to try to boost the company's flagging share price and maintain its listing on the Nasdaq stock market.

In a preliminary proxy statement filed with the Securities and Exchange Commission this week, RailWorks officials said that maintaining the national market listing is necessary to attract new investors as the railroad equipment and services provider seeks to dig out of its financial troubles.

Under the proposed reverse split, shareholders could receive one share for every two they now own, effectively doubling the share price and putting it just over the $5 minimum bid price required for listing on the Nasdaq.

However, the proposed amendment would give the board of directors the option of choosing a higher rate of exchange, giving shareholders one share for up to as many as 10 they currently own. Under that arrangement, a shareholder who owns 100 shares now could own 10 shares after the reverse split.

While the move probably would have little impact on the company's balance sheet, analysts say losing the Nasdaq listing could make the stock harder and more expensive to trade. The company, which posted a net loss of $60 million last year, also would lose a measure of prestige, which probably would result in less coverage by industry analysts.

"They clearly have higher expectations than where the stock is trading at today, so certainly it benefits them" to be on the Nasdaq, said Ross S. Payne, an analyst with First Union Securities Inc.

The cash-strapped company's stock has been trading at less than $3 per share since autumn, when the board of directors announced a major restructuring aimed at trimming costs in the face of mounting debts. The company's stock closed yesterday at $2.56 per share, up 6 cents.

Market officials agreed last Thursday to give RailWorks until May 18 to achieve a minimum $5 bid price or face being removed from the Nasdaq.

If shareholders approve the reverse split, the board of directors would meet to decide what rate of exchange is appropriate to reach a target share price of between $7 and $9.

The alternative is to transfer the listing to the Nasdaq SmallCap market, which allows a lower share price so long as companies maintain a market value of $35 million. Based on its current share price, RailWorks would qualify for a SmallCap listing. But its shares traded as low as $1.50 per share in February, a level that - if repeated - would knock the company's value below the minimum and result in its being transferred to the less desirable over-the-counter market.

"It's not a disaster, I don't think, to be pushed from the national market to the SmallCap market," said Arthur W. Hatfield, an analyst with Morgan Keegan & Co. "I really, truly think in the long run it's a nonevent for the company."

The reverse split most likely would have little effect on the value of investors' shares, but there is no guarantee that the share price will stay at the higher level after implementation of the amendment. The company has about 15.4 million shares outstanding, with company executives owning nearly 15 percent of the total.

More important, Hatfield said, is whether the company can stay ahead of its debts. RailWorks faces a critical date next month, when it must make an interest payment of roughly $10 million. Another, similar payment comes due in October.

"I think they're going to be fine to make it," Hatfield said of the April payment.

RailWorks employs about 30 at its Baltimore headquarters and more than 3,500 nationwide.

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