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A company life map - the rise and fall of a hot stock

Introduction| Course| 629

21. Share split

In March 2000, Country Bumpkin shares are trading at £15, having descended from their high of £35 in a period of volatile trading.

Alan is advised that the company should have a share split to reduce the share price and make them more marketable. The problem with shares that cost £15 is that the high price inhibits trading. Psychologically, investors would rather buy 5 shares costing £3 than one share costing £15.

CB has a "5 for 1" share split. Shareholders are issued with 4 new shares for every one that they hold, and the total number of shares increases from 17 million to 85 million.

Prior to the split, you had 700 shares in the company, acquired at a cost of £700. You now have 3,500 shares. From a tax point of view, each of those shares is deemed to have been acquired at 20p, with the total cost being £700.

The market adjusts the price of CB shares downward to reflect the higher number of shares in issue. Before the share split they stood at £15. After the split, they trade at £3.

1. Country Bumpkin - the early days 2. The decision to go public 3. AIM flotation by a placing of new shares 4. AIM flotation by an offer for sale 5. AIM flotation by tender offer 6. AIM flotation by introduction 7. First day of public trading on AIM 8. A growth strategy 9. End of lock-in period 10. The acquisition trail 11. Rights issue 12. Scrip issue 13. Preliminary results announced 14. Full results announced 15. Rumours of a deal - clarifying announcement 16. Takeover of rival - cash and shares deal 17. Convertible loan stock 18. Preparation for the main market 19. Admission to the main market 20. Move into FTSE 250 21. Share split 22. Share buyback 23. Director sells shares 24. New York-led collapse of tech stocks 25. Suspension of shares 26. Hostile bid for Country Bumpkin 27. Liquidation

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