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No one likes rejection, but when Nasdaq's the one giving the boot, it's more than hurt feelings. When the Nasdaq drops a company for not maintaining stock price and market value minimums, it faces an uphill battle for survival. Most wind up on Over the Counter (OTC) bulletin boards, a riskier market that's scary to investors. Lenders don't like it either and often demand payment in full from delisted businesses.
Many companies avoided exile when Nasdaq suspended delisting for three months starting in September. The market has since proposed looser requirements, pending SEC approval, to give small-cap companies six months instead of three to lift prices to the $1 minimum-and conditional extensions.
But that grace period only helps if the troubled companies use it to build a solid defense to keep from being delisting. Strategies typically include overhauling management and trying to lift share prices using either a dividend issue, a stock buyback or a reverse stock split.
But what companies do externally can make the biggest difference. "The first step is to communicate with your best customers and your current shareholders," says Haris Tajyar, vice president at the Financial Relations Board, a Los Angeles investor relations firm. A letter from the president should outline your strategy for staying listed and improving earnings. A publicity drive can also work to combat investor uncertainty, as long as the news is good. A reverse stock split helped J2 Global Communications of Hollywood avoid delisting in early 2001, attracting media attention. "Any press is good press, and we leveraged that as an opportunity to talk about us," says president Scott Jarus.
Delisting may be inevitable for some companies, but OTC trading doesn't necessarily lead to bankruptcy. Again, communication is key and should focus on soothing jittery shareholders until your business turns around, says Jeff Lambert, a principal of Lambert, Edwards & Associates, an investor relations firm in Grand Rapids, Michigan, who points out, "Delisting is not the end of the world."