Lordstown Motors share prices are plummeting after the automaker announced a reverse stock split today. The move is intended to resolve its dispute with Foxconn, but is leading to concerns among investors.
A reverse stock split sees a company reducing the number of shares there are out in the world. In this case, every 15 shares of Lordstown Motors will be combined into a single share. That has the effect of increasing the value of each share.
In this case, Barrons reports that the price of the stock should rise to more than $4.00. That’s important for Lordstown, because its shares are currently trading at 26 cents, well below the $1.00 minimum that the Nasdaq requires to list stocks. However, the move smacks of desperation, leading investors to lose interest in the company.
Read: Foxconn To Still Use Ohio Plant Even If Lordstown Deal Falls Apart
Lordstown Motors had received a delisting notice from the exchange, and says that this was one of the issues at the center of its dispute with Foxconn. The manufacturing giant was set to buy around 10 percent of the automaker, but refused to close on the $47.3 million deal because it argued that Lordstown’s low share price amounted to a failure of a closing condition.
Although Lordstown Motors is adamant that it has met all closing conditions, it is performing this reverse stock split in order “satisfy Foxconn’s (incorrect) interpretation of the closing condition and cause Foxconn to close the transaction,” it wrote in a release.
If Lordstown Motors’ stock remains at over a dollar for 10 consecutive trading days, it will have satisfied Nasdaq’s Bid Price Requirements, and will continue to be listed on the exchange. However, it warns that it cannot guarantee that Foxconn close on the deal, even if that happens.
The automaker previously warned that it could have to stop producing the Endurance electric pickup truck if it cannot find a partner and that it was at risk of bankruptcy. Lordstown has only completed 56 of the EVs since production started, and delivered just 18 to customers.
