Share Consolidation Question From A Rookie

[milt1968]

Seems I posted on the wrong forum regarding share consolidation.
I will use the example of the TRS/MEGA situation.

They are looking at a consolidation of 148:1, and a price of 0.30c.

So does this mean if a person owned 100k shares at 0.005, they would have 675 shares after consolidation, with a value of 202.00?

So they paid $500 but now only have shares worth $202?

So it is not good for the shareholders when a consolidation like this occurs?

PS. I own zero shares, am merely trying to learn

T

[Harvey Specter]

Forget the 30c. what is important is the market value of the shares which is currently 1c, post consolitation will be 148c.

The question then is the company worth that price? For the purposes of the takeover, they put a value of 30c? Was that too low? or too high? You could read the prospectus but there isn't one.

So how can you judge? You cant.

[Snow Leopard]

Firstly forget the TRS/MEGA thing completely for the moment - it is so not a good example.


In theory the market value of a company does not change as a result of a share reconstruction.

In a share consolidation the number of shares is reduced by some ratio (for example 5 pre-consolidation shares becomes 1 post-consolidation share) and the market price of the post-consolidation share is increased by the same ratio.

For example: AXG - Antipodes Gold did a share consolidation with a ratio of 10:1. Before there were 105,665,590 shares trading at 1.5c a share and after there are 10,566,559 shares trading at 15c a share. (It also changed it's name from GEL - Glass Earth but that is a completely separate issue - ignore it)

[Or maybe it is like taking 100 $5 notes into the bank and coming out with 5 $100 notes, you still have $500 but less actual notes]

Share consolidations usually happen to get the price of one share up out of the gutter.


The opposite of a share consolidation is a share split where the number of shares is increased by some ratio (for example 1 pre-split share becomes 5 post-split shares) and the market price of the post-split share is decreased by the same ratio.

[This is where you walk into the bank with 5 $100 notes and come out with 100 $5 notes.]

Share splits usually happen to bring the price of a share down to some perceived more acceptable range.

Hope that helps & Best Wishes
Paper Tiger

[janner]

A good clear explanation PT..

milt1968 More reading is recommended :-)))

Your on the right track.. :-))

Firstly forget the TRS/MEGA thing completely for the moment - it is so not a good example.


In theory the market value of a company does not change as a result of a share reconstruction.

In a share consolidation the number of shares is reduced by some ratio (for example 5 pre-consolidation shares becomes 1 post-consolidation share) and the market price of the post-consolidation share is increased by the same ratio.

For example: AXG - Antipodes Gold did a share consolidation with a ratio of 10:1. Before there were 105,665,590 shares trading at 1.5c a share and after there are 10,566,559 shares trading at 15c a share. (It also changed it's name from GEL - Glass Earth but that is a completely separate issue - ignore it)

[Or maybe it is like taking 100 $5 notes into the bank and coming out with 5 $100 notes, you still have $500 but less actual notes]

Share consolidations usually happen to get the price of one share up out of the gutter.


The opposite of a share consolidation is a share split where the number of shares is increased by some ratio (for example 1 pre-split share becomes 5 post-split shares) and the market price of the post-split share is decreased by the same ratio.

[This is where you walk into the bank with 5 $100 notes and come out with 100 $5 notes.]

Share splits usually happen to bring the price of a share down to some perceived more acceptable range.

Hope that helps & Best Wishes
Paper Tiger

[milt1968]

Thanks Paper Tiger - very helpful. Have just started The Intelligent Investor, should be a good read.