De-Listings Up IPOs Down As Companies Play Defense

June 19, 2002
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GRAND RAPIDS — Going public is tough these days. Staying there isn't so easy, either.

While the pace of IPOs has slowed in 2001, the rate of companies being "de-listed" from the major exchanges is up compared to 2000.

According to the Nasdaq stock market, 279 companies were de-listed this year through July, versus only 240 during all of 2000. This compares to only 69 IPOs on Nasdaq during the first half of 2001, down from 342 IPOs over the same period in 2000. The companies scrambling to avoid demotion to the Over-the-Counter Electronic Bulletin Board (OTC-BB) or Pink Sheets range from penny stocks that miss the minimum bid price to dot-coms fighting for survival, as well as good companies caught in a soft economy. Of course, demoted companies are still publicly traded, but they tend to be less liquid than those on major exchanges.

One investor relations firm, Grand Rapids-based Lambert, Edwards & Associates Inc., sees the de-listing process as an opportunity and one of many "shareholder value preservation" needs that are often overlooked by its peers in the IR business.

"Continued listing is much more dour than initial listing, but no less important," said Jeff Lambert, principal of the firm. "New listing requirements and increased scrutiny by the exchanges, particularly aimed at small-cap stocks, has created a cottage industry in de-listing avoidance."

Lambert's firm has helped four clients stay listed on Nasdaq after they received notice they could be de-listed. Lambert himself has traveled to Washington, D.C., twice to argue clients' cases before a Nasdaq panel. He declined to specifically identify the client companies.

One LE&A client, an NYSE company, was unsuccessful in its continued listing bid. The NYSE firm later filed for Chapter 11 bankruptcy.

"Some companies simply don't belong on a major exchange, and that's the intent of marketplace rules. However, in the process of sorting out the bad seeds, some good companies are getting caught in the de-listing net," he said.

Whether a de-listing is imminent or the company is faced with communicating bad news, the importance of a good all-around strategy is essential.

"Everyone wants to tell the IPO success story, but the reality is that most investor relations is done in the trenches and occurs long after the glimmer has faded," he said.

"It's a lot of hard work talking to shareholders about a bad quarter, or why insiders are registering to sell shares, or appeasing the hedge fund manager that threatens to sell unless he gets bi-annual management visits. The blocking and tackling IR activities are just as critical to maximizing shareholder value, and it's the IR firms that are willing to get their hands dirty that will be in increasing demand."

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