Liberate Technologies, a one-time developer of interactive TV software and current clean-up project, announced today that it plans to go private in a reverse stock split. This is a technique recently perfected by thinly-traded Canadian stocks that has now taken hold in the US. The way it works is to reverse so massively - Liberate is doing a 250,000:1 reverse - that almost all shareholders are reduced to below one share of stock. Then corporate laws allow the company to pay the value of one share (now 250,000 times higher!), lower the number of shareholders, and take the company private. (Companies with fewer than 300 shareholders need not comply with public reporting laws.) In this case, Liberate shareholders with fewer than 250,000 shares will be shrunk below one share, and receive about $4 million.
Why do this? Sarbanes-Oxley, which roughly doubles the cost of being a public company.
Those who think SOx is a good idea should take note. We always over-react to a stock market panic, and the cure is often worse than the illness. It took 60 years to repeal the bad laws after the 1929 crash. Senator Oxley himself thinks his law has been taken too far. Next we will see venture-backed companies going public overseas to avoid SOx. We hear the Tokyo exchange is particularly friendly!