June 28, 2001 4:10 PM PDT

Webvan hopes stock split will spark rebound

Webvan shareholders must vote Friday whether to implement a reverse stock split to ward off banishment from the Nasdaq Stock Market.

Foster City, Calif.-based Webvan, once a high-flying e-commerce company, is on the brink of being delisted from the exchange for failing to meet the Nasdaq's $1 minimum share price.

The online grocer is proposing a 25-to-1 split, which would convert 25 Webvan shares into one new share worth $2.25, based on Thursday's close. The stock, which ended the regular session Thursday at 9 cents, has lost more than 99 percent of its value since hitting a high of $34 on the day of its November 1999 initial public offering.

Webvan spokesman Bud Grebey said management and employees are aggressively pursuing the company's strategy and not paying attention to Wall Street.

"Our focus is on the customer," Grebey said. "Satisfying our customers...that's exactly where the answers are."

For the past year, Webvan appeared to have buckled under its own weight. Only Amazon.com attracted more funding among e-tailers. The one-time $8 billion company emptied much of its sizable war chest by building expensive warehouses and high-tech distribution systems. When profits did not come as quickly as Webvan projected, investors fled.

Analysts, even those bullish on the stock a year ago, have abandoned Webvan. Merrill Lynch analyst Henry Blodget discontinued his coverage of Webvan this week, and Greg Kyle, an analyst at Pegasus Research International, advised clients to sell the stock, saying that delisting is "inevitable."

Though most analysts see a reverse stock split as a last-ditch effort, companies will typically go to those great lengths to avoid being delisted.

Companies that are delisted usually head to the over-the-counter bulletin board, or OTC, a type of stock market purgatory, and once there, many struggle to attract funding or talented workers.

But a reverse split is by no means a magic pill. Many fail, according to the Nasdaq, which said out of the more than 30 stocks that attempted a reverse split last year, 22 percent slipped into penny-stock status a short time later.

A split is designed to keep the stock above $1 and thereby meet the Nasdaq's requirements for continued listing.

In April, Quokka Sports implemented a 50-to-1 split after its shares went from a high last year of $10 down to 7 cents. Quokka's converted shares were valued at $3.50 but plunged more than 50 percent on the first day of trading after the split.

The price continued to fall over the next two days, finally bottoming out at 23 cents. Quokka filed for bankruptcy a week later.

Webvan's newly appointed chief executive, Robert Swan, who took over for former CEO George Shaheen, is trying to lead a comeback.

Swan has overseen a cutback in spending and in the company's once-extensive expansion plans. A year ago, the company planned on opening in 26 cities, but this year Webvan ceased operations in Dallas, Atlanta and Sacramento, Calif. The company also laid off hundreds of workers and trimmed its product categories.

At the same time, Webvan continues to spend on television, radio and Internet advertising and is experimenting with services such as same-day delivery.

 

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