More stocks get dreaded delist warning

Threat: Corvis, a Columbia fiber-optics company, is the latest to get a Nasdaq `deficiency notice.'

July 20, 2002|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

As the market slides, some technology companies have been faced with warnings that their stocks could be delisted - and Corvis Corp. has joined the ranks, acknowledging yesterday that it has received notification from Nasdaq.

"It's sad, but they're certainly not the only ones to have to deal with this thing," said Rick Schafer, a research analyst for CIBC World Markets in Denver. "It's been on everybody's minds."

"It's certainly something that a lot of the tech companies are struggling with right now because each of the various exchanges, including the Nasdaq, has a set of conditions," said Scott Hoyt, director of consumer economics for Economy.com.

Digex Inc., a Beltsville corporate Web-hosting company, also said this week that it received notification from the Nasdaq stock market that its shares have traded below $1 for longer than regulations allow, and it has several weeks to comply.

If a stock trades below $1 on the Nasdaq stock market for 30 consecutive trading days, the company receives a "deficiency notice," or warning. During the 90 calendar days that follow, the stock must close at or above $1 for 10 consecutive trading days or it will be delisted, according to Nasdaq. The company can appeal the Nasdaq decision.

But a warning from Nasdaq leaves companies such as Corvis, the Columbia fiber-optic equipment maker, and Digex with time before they reach the delisting brink.

Analysts said one option is a reverse stock split, which boosts share prices. For example, a reverse split issuing one new share for each three old shares would triple the stock price.

Businesses also can transfer their stock to the Nasdaq small-cap market, which allots companies 180 days for their stock price to go back up to $1 or more, plus an additional 180 days if the company meets certain financial requirements. The process could take up to a year.

Digex said this week that it plans to apply for transfer to the Nasdaq small-cap market. Its shares closed yesterday at 14 cents, down 3 cents.

Andy Backman, a Corvis spokesman, said the company isn't worried that it will be delisted, and it is looking at a number of options that the company hopes would mitigate that. He said Corvis had been expecting the letter, which is part of the Nasdaq process.

"We're aware of the Nasdaq requirements," he said. "There are several actions that a company in our position, with the current stock trading where it is, can take to maintain our listing. We have and will continue to explore those options and make the appropriate decision."

Shares of Corvis closed yesterday at 69 cents, down 5 cents.

Corvis' stock has slipped more than 99 percent below its $108.06 high in August 2000. But the tumbling price comes at a time when the entire telecom sector is struggling.

"It has really gotten very predominant now throughout the technology sector that companies are either delisted or they have a warning or they're right at the brink of going under," said Sam Greenholtz, a senior analyst for Communications Industry Researchers Inc.

But that sector isn't the only one where companies have been hit. Nasdaq told eChapman Inc., a Baltimore investment company, last month that it plans to delist shares. The company said it would contest it.

Schafer, the CIBC analyst, said he does not believe Corvis' stock will be delisted.

"I think they're going to fix the problem," he said.

And Backman of Corvis said the company is well-positioned to weather the downturn and emerge as a key player when the market turns.

David Gross, a senior analyst who covers optical networking for Communications Industry Researchers, said Corvis isn't likely to be delisted in the next month or two. But he believes it will happen in four or five months.

"It's usually the kiss of death, especially in technology, so it's not good news," Gross said.

Hoyt of Economy.com added that if a company gets delisted, "usually the trade volume will drop, fewer analysts are likely to cover them, a lot fewer mutual funds are likely to invest in them."

And Robert Mewshaw, president of Van Sant and Mewshaw, a Lutherville money management firm, said it is also difficult for delisted firms to raise capital. "Nobody wants to do an investment banking deal with somebody who isn't on an exchange," he said.

On the other hand, Alex Mou, a senior analyst at Hotovec, Pomeranz & Co. in San Francisco, said it's not uncommon for stock prices to go back up above $1 once a company is warned. "It's entirely possible because there are a lot of companies that are below a dollar right now," he said.

Mou said that for investors who are looking at stocks below $1, the risk is that management could take the company private or that the stock gets delisted. The upside is that the company could fight its way back.

"If we have a market rally and the economy all of a sudden starts to take off, then we can see things will appreciate fairly well," he said.

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