0

A company is trading at $5 per share, they are a manufacturing company and their land is very valuable. They want to sell out their factories and their land involved, so it looks like they will have no core business left, just sitting a pile of cash after they sell it.

Threy just entered into a conditional sales agreement (needs to be completed within 6 months) with another company who wants to buy their land, factories, all it's assets --- after subtracting their loans/debt, this company will still be receving roughly $12 per share after they sell their factories and land, it is only trading at $5 now. It seems the management wants to retire also and just distribute out the $12 per share to the share holders. The only problem is the stock exchange states if the company has no core business, the stock will be suspended soon (hopefully they can release the $12 per share first). What will happen if I hold shares in the company, the stock gets suspended, and its sitting on $12 per share? Can it still distribute it out?

Why is the stock trading at only $5 per share? Is there any "catches" if I buy the share now at $5 and wait 6 months till the sale is completed, and they distribute the roughly $12 per share to its shareholders?

  • You might get a better answer if you name the stock. – Ben Miller - Reinstate Monica Jul 4 '15 at 12:06
  • What country please add a country tag – Dheer Jul 4 '15 at 12:43
  • 4
    If it were this simple, the stock price would inch toward that $12 level. The market, via the bid/ask has voted to tell you they don't believe the deal will go through as you state. To Ben's point, knowing the stock would allow members to offer more concrete reasons. – JTP - Apologise to Monica Jul 4 '15 at 17:31
  • 2
    The share price is the perceived value of the company by people buying and selling the stock. Not the actual value of the company and all its assets. When it is first offered to the public in an IPO it's supposed to be close to it's actual value but as it gets traded and people attempt to predict where it's going, or cash in on their shares, the price will go up and down. So in short, it's trading at $5 a share because the market doesn't feel like it's worth $12 per share. – Anthony Russell Jul 6 '15 at 12:22
5

Why is the stock trading at only $5 per share?

The share price is the perceived value of the company by people buying and selling the stock. Not the actual value of the company and all its assets. Generally if the company is not doing well, there is a perceived risk that it will burn out the money fast. There is a difference between its signed conditional sale and will get money and has got money. So in short, it's trading at $5 a share because the market doesn't feel like it's worth $12 per share. Quite a few believe there could be issues faced; i.e. it may not make the $12, or there will be additional obligations, i.e. employees may demand more layoff compensation, etc. or the distribution may take few years due to regulatory and legal hurdles.

The only problem is the stock exchange states if the company has no core business, the stock will be suspended soon (hopefully they can release the $12 per share first). What will happen if I hold shares in the company, the stock gets suspended, and its sitting on $12 per share? Can it still distribute it out?

Every country and stock markets have laid out procedures for de-listing a company and closing a company. The company can give $10 as say dividends and remaining later; or as part of the closure process, the company will distribute the balance among shareholders. This would be a long drawn process.

3

The stock exchange here serves as a meeting place for current shareholders who want to sell their shares to someone else. This has nothing to do with liquidation, which is a transaction between the company and its shareholders. A company does not have to be listed on an exchange to make distributions to shareholders.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.