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There's a UK company I know of that are consolidating their shares by a factor of 50.

The share price is currently around 15p and at the end of the month the consolidation will take place.

From an investor's point of view what risks and opportunities can arise from this? Here are a few I am thinking about right now..

Obviously they want to keep it fair, however my thinking mostly revolves around the amount of shares held, (aka the multiplier) if you believe a company to in the long term will go up you want as many multipliers as possible and at what price is it buy those multipliers.

My feeling is 15p would buy you more shares now, but if the price is to be set at 50p it would only be cost effective if the price now was below 10p. Because for 1 new share right now you'd pay 75p total, 5 x 15p and after consolidation 50p. So it seems now would not be a good time to buy more, does this logic make sense. So what might have been an pro could be con.

I have also heard rumours that previous other consolations from other companies have ended in share price drops to start with. So if that were to happen it would be worth waiting. So a con to buy no if the price could drop later.

What can you see? Please keep answers simple.

Thanks.

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    Paragraphs 4 and 5 are very confusing. – RonJohn May 18 '18 at 13:58
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    Reverse stock split do not change the value of your position. These are usually done in order to continue to meet exchange listing requirements. If a stock is trading so low that it has to do a reverse split then it is a financially troubled company. Increasing share price artificially via the split does not change the financial picture and that's why such companies tend to lose share value. – Bob Baerker May 18 '18 at 14:29
  • Also, they do not set the price after the share consolidation. The price after consolidation is what someone is willing to pay for a share. Also a factor of 50 would mean that if the share is worth 15p now it would be 7.50 after. – xyious May 18 '18 at 15:33
  • If your broker or their registration won't support fractional shares, then you'll be forced to sell or buy to end up in units of 50; the price or fees paid may not be to your preference. – user662852 May 18 '18 at 18:50
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Imagine there's a pie cut into 8 pieces. You and 3 other people each get 2 pieces. Then, the pieman informs everyone that they must put their 2 pieces of pie together. Do you have more or less pie than you had before? Do you have more of the whole pie percentage-wise? Did the size of the pie change?

Share consolidation does not affect existing shareholders in a meaningful way. At best, there are secondary effects, such as if a more "normal" share price attracts more buyers and sellers and the value goes up or down due to greater volume, but mathematically your total position is not worth any more or less than the originally were before the consolidation. Another effect is that share consolidation is a negative signal, since it could mean the company believes the shares are not going to go up in price on their own.

Yes, for the same amount you can buy fewer shares, but those shares are worth more now (because they represent a larger ownership percentage), so the grand total is the same.

  • Most of the time, a reverse stock split is done in order to continue to meet exchange listing requirements. – Bob Baerker May 18 '18 at 14:25

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