Apr 022014

By Nick Worth
Passport Potash, Inc. announced a two to one reverse stock split, effective March 13.
In the deal, holders of Passport common shares will now hold one share for every two shares they held before the consolidation. In simple terms, someone who held 1,000 shares of the stock would now hold 500 shares.
After the consolidation, the company had approximately 105,651,157 common shares issued and outstanding.
Passport also announced it has entered into agreements with all participants in the 2013 convertible debenture to amend the terms of that deal. A convertible debenture is a type of loan used by companies to grow or maintain their operations. The holders of the loan can then convert their notes, or warrants, into shares of stock in the company.
The Toronto Stock Exchange Venture Exchange has approved the amendment of Passport’s convertible debentures.
The convertible debenture of US $5.8 million, plus interest, was due Feb. 19. Originally, holders of the debt could convert to Passport common shares at 19 cents per share for a one year period. Following the consolidation on March 13, that price dropped to 12 cents per share until maturity.
Under the original warrant terms, each warrant had a term of one year from the date of issuance, during which the holders could purchase one share of common stock for 19 cents. Following the consolidation, warrant holders have 42 months from the date of issuance, or until Aug. 19, 2016, to purchase shares at 12 cents per share.
The original interest rate was 15 percent per annum. That has been changed to 9.5 percent.
Ken Bond, head of corporate development for Passport, explained the consolidation.
“It’s the same amount of money,” Bond said. He compared a consolidation to converting 10 dimes into four quarters.
“The reason you’ll see a consolidation, more often than not it’s designed to improve the way the shares react in the market,” Bond said. “Having too many shares out dilutes some kinds of future activity. It can make the shares perform sluggishly in the market.”
There may be other reasons for a share consolidation.
Prospect Global Resources, the other major player in the Holbrook Basin potash race, did a 50 to one reverse stock split in September of last year. The purpose of that consolidation was to drive the price of the company’s stock higher so it would meet the criteria for listing on the NASDAQ stock exchange.
“The price of the new shares is not set by the company, it’s set by the market,” said Bond. “In past shareholders’ meetings we have received approval by the shareholders to make up to a 10 to one consolidation, but we’ve only done a two to one.”
Bond said the important thing to remember is that the reverse split does not affect a shareholder’s overall investment.
“For a shareholder in the company, their percentage of ownership doesn’t change,” said Bond. “All that changes is the (number) of shares.”