Sprint and T Mobile’s Extreme Debt Post-Merger

During the financial crisis, the price of Sprint stock fell from $24 per share to $1.30, effectively pricing into the stock the looming possibility of bankruptcy. At the time, Sprint had a debt burden of $20 billion and was losing $1.6 billion during calendar year 2008.

I never write about Sprint as an investment because the debt burden has been just too speculative—if I can’t be reasonably sure that the debt won’t force the company into bankruptcy within the next decade or so, why cover the business enterprise?

With interest rates still so low, it can be easy to forget that debt obligations matter. Then, you peek out and see news items today like Gibson Brands, Inc.’s news of bankruptcy. The maker of Gibson Guitars is “profitable” in the sense that that the core businesses generate revenue that is greater than its non-debt related expenses, but it is not profitable … Read the rest of this article!

Reverse Stock Split: What Is It?

Companies that engage in reverse stock splits have a terrible track record of underperformance against the stock market as a whole. Theoretically, changes in the arrangements of a corporations’ share count should have no effect on the underlying business, yet research shows that these types of splits are associated with underperformance.

A reverse split occurs when a company recalls your shares and issues you a fewer number of shares that trade at a higher price. In other words, the whole point of a reverse share split is that the company is saying that it’s better for you to have one hundred dollar bill rather than five twenty-dollar bills.

The Basic Overview

When the bylaws are drafted for a corporation, the Board of Directors are almost always granted unfettered authority to determine the capitalization structure. If a business raises $1 million, the corporation can decide to break it into 1,000,000 shares … Read the rest of this article!