SAN FRANCISCO -- A year ago, online grocer Webvan Group had a lot on its plate. The company had just gobbled up rival HomeGrocer.com in a $1 billion takeover and management remained set on revolutionizing the supermarket industry.
Now, Webvan is just hoping to fatten the measly price of its scrawny stock.
Since Webvan's June 2000 announcement that it would acquire HomeGrocer, the company's stock (WBVN) has plunged 99 percent to 8 cents per share as of Friday morning. That tumble wiped out $3.5 billion in shareholder wealth.
Gone, too, is the brashness that prompted former Chief Executive George Shaheen to tell Forbes magazine in late 1999 that Webvan would "set the rules for the largest consumer sector in the economy."
Webvan began delivering groceries in June 1999 with plans to expand into 26 metropolitan markets by the end of 2002. It now serves seven cities.
Now, in a last-ditch attempt to avoid getting kicked off the Nasdaq, Foster City-based Webvan on Friday will ask its shareholders to approve a 1-for-25 reverse stock split.
The proposal, expected to win approval at Webvan's annual meeting Friday, illustrates the depths of the company's despair, stock market analysts say.
Under a reverse stock split, a company reduces the number of outstanding shares in an attempt to boost its market value. In theory, the remaining shares become more valuable with the decreasing supply.
In Webvan's case, the number of outstanding shares will plunge from 480 million shares to 19 million. If all goes according to plan, after the reverse split the company's shares will be worth at least 25 times more for $2 per share, based on Friday's price.
Webvan needs to get its shares above $1 per share to avoid being delisted by Nasdaq. Getting the stock above $1 also may attract institutional investors that are prohibited from buying penny stocks.
But reverse stock splits often backfire.
If a company needs a reverse split to boost its stock, many investors conclude it must be on its last legs, according to Chuck Hill, director of research for Thomson Financial/First Call. Webvan already has warned shareholders that it needs to raise an additional $25 million to stay in business beyond March 2002.
Reducing the number of outstanding shares could alarm some skittish shareholders by increasing Webvan's reported losses per share. For instance, if the reverse stock split had been in effect last year, Webvan would have recorded a loss of $30.25 per share instead of the reported $1.21 per share. Webvan's shareholders are accustomed to red ink. Through March 31 of this year, Webvan had lost $830 million in its brief history.
Despite the stigma, dozens of companies have resorted to reverse splits this year.
Forty-two companies have declared reverse stock splits so far this year, according to Thomson Financial/First Call. Another 111 companies have made traditional stock splits that are generally embraced by investors because they make shares more affordable to buy.
Some of the reverse splits have paid off. The stock of marine food company Zapata has gained 15 percent since a 1-for-10 reverse split in January.
Other splits, however, have flopped.
Shares of Quokka Sports plunged 50 percent after a 1-for-50 reverse split in April, and the company filed for bankruptcy a few days later. Online mortgage broker Finet.com's stock is down 55 percent since a 1-for-12 reverse split in February; youth website Snowball.com's shares have dropped 51 percent since a 1-for-3 reverse split in February.
The reverse split represents the latest in a string of setbacks for Webvan. The company has laid off 885 workers and abandoned three markets (Dallas, Atlanta and Sacramento) since February.
Former CEO Shaheen resigned in April and is now collecting a $31,250 monthly paycheck for the rest of his life as part of a contract Webvan signed when it still believed it would become an industry giant, according to company documents.
Webvan's new CEO Robert Swan still believes the company can turn an operating profit by the second half of next year, serving more than 750,000 active customer accounts in its seven remaining markets of San Francisco, Los Angeles, Orange County, San Diego, Seattle, Chicago and Portland, Oregon.
