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Mullen Automotive (NASDAQ:MULN) stock is trading at a much higher price than when compared to yesterday, and that’s entirely due to a 1-for-9 reverse stock split that became effective at 12:01 a.m. Eastern today. This means that every nine shares of MULN stock owned by shareholders have consolidated into one share. As a result, the stock price increased by a multiple of nine.
Percentage ownership of Mullen was not affected by the reverse split. Mullen’s board received the green light to enact the reverse split after shareholders voted in favor of authorizing a reverse split in a range between 1-for-2 and 1-for-100.
This is the second reverse split that Mullen has enacted this year. The first came on May 4 after the company initiated a 1-for-25 reverse split in order to meet the Nasdaq minimum price requirement of $1. The reverse split that occurred today was initiated to meet the same requirement.
Shareholders have not responded well to the share consolidations. Since May 4, MULN stock has fallen drastically.
MULN Stock Hovers Near $1 After 1-for-9 Reverse Split
In order to regain Nasdaq compliance, MULN must trade above $1 for at least 10 consecutive business days but generally no more than 20 consecutive business days. Mullen announced in mid-May that its shares traded above $1 for 10 consecutive business days. However, it still remains on Nasdaq’s list of noncompliant companies. As a result of this, we can conclude that Nasdaq previously required MULN to trade above $1 for more than 10 consecutive business days.
Nasdaq has provided Mullen with a deadline of Sept. 5 to achieve the $1 threshold. Including today, there are only 18 business days between now and the deadline.
So, why exactly did Mullen pick 1-for-9 as its reverse split ratio? That was likely done to stay within the limits of another Nasdaq policy:
“Notwithstanding the foregoing, if a Company’s security fails to meet the continued listing requirement for minimum bid price and the Company has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one, then the Company shall not be eligible for any compliance period specified in this Rule 5810(c)(3)() and the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security.”
With a 1-for-25 reverse split and another 1-for-9 reverse split, that brings Mullen’s cumulative reverse split ratio to 1-for-225. A 1-for-10 reverse split or greater instead of a 1-for-9 would have brought the ratio to 1-for-250, making Mullen ineligible for a compliance period and at risk of being delisted.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.