Markforged Approves 1-for-10 Reverse Stock Split

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Ever wondered why companies decide to go through with a reverse stock split?

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Markforged Approves 1-for-10 Reverse Stock Split

Let’s unravel the recent announcement by Markforged Holding Corporation (NYSE: MKFG). The decision of the Board of Directors to authorize a 1-for-10 reverse stock split of its Common Stock has caught the attention of many. What does it mean, and how does it impact the stakeholders and the market?

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Understanding the Reverse Stock Split

A reverse stock split can seem complex, but it’s essentially a move where a company consolidates its existing shares into fewer, more valuable ones. For Markforged, this means every ten shares of their Common Stock will be converted into one new share. This effectively reduces the number of shares in circulation, while simultaneously increasing the stock’s price per share.

The Background

Earlier in 2021, Markforged went public via a Special Purpose Acquisition Company (SPAC) merger. Fast forward to June 18, 2024, the company’s stockholders had already laid the groundwork for a reverse stock split. They approved a potential split ratio ranging from 1-for-5 to 1-for-10. This decision provided the Board with the discretion to choose the optimal split ratio based on market conditions.

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The Reason Behind the Move

So, why did Markforged opt for a 1-for-10 ratio? This strategic decision was motivated by the need to comply with the New York Stock Exchange’s (NYSE) minimum bid price requirement. Failing to meet this requirement could lead to the company being delisted, a situation most public companies aim to avoid.

Effective Date and Trading Adjustments

The decision takes effect at 12:01 a.m. Eastern Time, on September 19, 2024. From this point, Markforged’s Common Stock will trade on a split-adjusted basis. Shareholders will notice a new CUSIP number (57064N201) accompanying the stock though it will continue under the symbol “MKFG.”

What’s the Impact on Shareholders?

Wondering how this affects you as a shareholder? Post-split, the number of your shares will reduce, but the value of each share will rise roughly tenfold. For example, if you own 100 shares priced at $1 per share pre-split, post-split, you will own 10 shares worth approximately $10 each. Your total holding value remains the same – just redistributed.

Here’s a table to illustrate this:

Pre-Split	Post-Split
100 shares @ $1	10 shares @ $10
200 shares @ $0.50	20 shares @ $5
500 shares @ $2	50 shares @ $20

Additionally, no fractional shares will be issued. If you were to end up with a fraction of a share post-split, you would instead be rounded up to the nearest whole share.

Adjustments to Equity Plans and Warrants

Beyond straightforward share ownership, there are several implications for equity incentive plans and outstanding warrants:

Proportional Adjustments: Share quantities and exercise prices under equity incentive plans and outstanding stock options will adjust proportionately.
Warrants: Following the split, ten existing warrants will be needed to purchase one share of Common Stock, with the exercise price adjusted to $115 per share.

Authorized Shares Reduction

Interestingly, the reverse stock split also reduces the number of shares Markforged is authorized to issue. This number shrinks from 1 billion to 100 million. This reduction in authorized shares can aid in improving the company’s stock valuation and market perception.

Continental Stock Transfer & Trust Company’s Role

Continental Stock Transfer & Trust Company serves as the exchange agent for this reverse stock split. For shareholders maintaining their shares in book-entry, you’ll receive a transaction statement from Continental reflecting your new ownership details without any required action on your part.

Shareholders with bank or broker-held shares will see their holdings adjusted automatically, with minimal action required on their end. However, processes can vary based on the financial institution handling your shares.

Maintaining NYSE Compliance

It’s essential to note that this entire maneuver is driven by the goal of maintaining compliance with NYSE’s listing standards. The reverse stock split ensures Markforged’s stock price meets the minimum bid price requirement, allowing continued trading on the Exchange and avoiding the risk of de-listing.

The Broader Industry Context

Markforged’s decision follows a trend seen in other companies within the additive manufacturing (AM) industry. For context, Desktop Metal leveraged a similar strategy to facilitate a merger. Meanwhile, companies like voxeljet and Velo3D have faced de-listing threats when their strategies didn’t secure long-term compliance with Exchange regulations.

Stock Market Dynamics

The dynamics of stock splits and reverse splits reflect broader financial strategies companies employ to manage market perceptions and investor relations. The move can sometimes be seen as a signal that the company is taking steps to stabilize or improve its stock performance.

Outlook and Projections

Post-split, Markforged will keenly monitor the effect on its market performance. The anticipated reduction from approximately 203 million to 20.3 million outstanding shares can generate a more enticing stock profile for investors, potentially leading to improved valuations and stronger market positions.

Fractional Shares and Stockholder Adjustments

What happens if you’re eligible for fractional shares post-split? Markforged’s approach ensures you receive an additional fraction, converting fractional shares into whole shares, avoiding any loss in the total value of holdings.

Equity Incentive Plans and Executive Compensation

Adjustments don’t stop at public shares and warrants. Markforged’s equity incentive plans, which include stock options and restricted stock units, will also see proportional changes. This alignment ensures continuity and fairness in employee and executive compensation, critical in retaining and motivating talent.

Historical Examples and Future Path

To place Markforged’s reverse stock split in context, looking at historical examples helps. Companies undergoing reverse splits often seek to buoy investor confidence and maintain Exchange listings. Success varies — some stabilize their prices and secure mergers, while others fail to sustain improved valuations.

Conclusion

Markforged’s reverse stock split represents a tactical maneuver to secure its position on the NYSE and aim for long-term market stability. As a shareholder or potential investor, understanding this process, its motivations, and its impacts is crucial. Keep an eye on post-split trading to gauge the move’s efficacy and its broader implications for the company.

If you have any questions or thoughts on how this affects your holdings or view of Markforged, feel free to discuss with your financial advisor. The AM industry is evolving, and Markforged’s strategic decisions might just define its path forward in this competitive landscape.

Key Takeaways

Reverse Stock Split: 1-for-10 split effective September 19, 2024.
Stockholder Impact: Reduction in share quantity with no fractional shares issued.
Market Compliance: Ensures compliance with NYSE minimum bid price requirements.
Industry Trends: Reflects broader trends in the AM industry and stock market strategies.
Future Projections: Anticipates refining stock profile and enhancing market valuations.