VIEW POP UP CHART - SORRY THIS CHART IS NO LONGER AVAILABLE Of all the documents Jana Wilson fed into the paper shredder earlier this month, one was destroyed with particular satisfaction. It was a one-page fax from the Nasdaq stock exchange, dated Nov. 9, informing the Garden.com (GDEN) chief financial officer that her company would be delisted - that is, removed from the Nasdaq.
"When you're told you're being kicked off, it kind of bums you out," said Wilson, as she packed her office things into boxes, preparing for Garden.com's liquidation. "I was glad to get rid of that letter - I really don't want it haunting me any further."
But for an alarming array of new-economy companies, the nightmare is just beginning. An investigation by The Standard has revealed that hundreds of companies no longer meet the Nasdaq's basic requirements for listing on the exchange, falling into jeopardy of being delisted. At imminent risk: the survival of more than 5 percent of the stocks on the Nasdaq national market.
Nasdaq officials decline to acknowledge which, or even how many, member companies have received such warnings. But The Standard asked FactSet Data Systems to compile a list of companies that no longer meet the Nasdaq's standards. The result is startling. According to FactSet, 257 companies have fallen below the Nasdaq's listing standards in the last six weeks alone.
But this may be just the tip of the iceberg. Another study by San Francisco investment bank Epoch Partners reveals that 38 more companies are just days away from such a fate.
The Nasdaq's listing standards can be arcane, and the secretive nature of the delisting process makes it even more confounding. Struggling companies are not automatically kicked off the exchange. But when Nasdaq-listed companies fail to meet two complicated sets of criteria, they can be delisted.
This was far from the minds of new-economy companies as they rushed to file IPOs; in recent years, the Nasdaq welcomed these young firms with open arms. But as the stock market has melted down over the last few months, many of these companies have seen their share prices tumble. And as they burned through IPO cash, they had little left by way of tangible assets. The upshot: As the market fell, the stocks dipped below the Nasdaq's minimums.
Of all the complicated requirements, the most damning is the $1 rule. "If a company's share price is below $1 for 30 consecutive business days," says Nasdaq spokesman Wayne Lee, "we will properly notify the company that it is not in compliance."
That's the dreaded fax. Essentially, it's like getting kicked out of an apartment; first comes the eviction notice, then the actual eviction follows 90 trading days later, though that can be delayed by appeals and hearings.
To stave off getting the boot, a company must hoist its stock price back above $1 and keep it there for 10 days. And it has only 90 days to meet this hurdle. This struggle happens behind closed doors: The Nasdaq doesn't let the public know when these notices go out, and the firms aren't terribly forthcoming either. The Standard called hundreds of companies; several acknowledged receiving a warning letter from Nasdaq. But the response of Tickets.com (TIXX) was more typical: "Discussions we may or may not have had with Nasdaq are between the two entities," said investor relations representative Randall Oliver. "There is no obligation to disclose the content of any discussions that may have taken place."
Since these warnings can preclude an actual delisting, the Nasdaq insists the warnings are a private matter. "The Nasdaq is entrusted with the authority to maintain the quality and the public confidence in the market," says Lee. "Do you have any idea what would happen to public confidence if we were to print a list like this? Put yourself in the shoes of an investor in these stocks. This could do serious damage to these share prices."
