Here are reasons I’ve found given by American companies for executing reverse stock splits (i.e. consolidation)
Avoiding Delisting. The stock price must be maintained above $1 to avoid delisting. (This is the most common reason given for reverse stock splits of US-listed shares.)
Reducing Transaction Costs. Investors may be dissuaded from purchasing stock below certain prices because the brokerage commissions, as a percentage of the total transaction value, tend to be higher for low-priced stocks.
Overcoming Negative Perceptions. There is a “stigma” attached to low priced shares. Low prices are said to elicit negative emotions in investors and to inhibit the attention of the big money on Wall Street or coverage by major research firms.
Reducing Stock Price Volatility. Some companies cite advice by certain institutional investors, as well as by financial advisors, that a higher stock price might increase the acceptability of its stock to a number of long-term investors who might avoid the shares at their pre-split price due to the trading volatility that often comes with lower-priced stocks.
Meeting Stock Price Requirements of Brokerage Houses and Institutional Investors. Many brokerage houses and institutional investors are said to have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers or by restricting or limiting the ability to purchase such stocks on margin.
Providing a sufficient level of authorized shares of common stock available for future issuance. Companies require sufficient available authorized shares of common stock to provide for any potential future stock issuance for purposes such as raising capital, effecting acquisitions or incentivizing employees.
Obviously, the first reason doesn’t apply to Neuren as an ASX listed company and the second reason seems to be fairly trivial. The third, fourth and fifth reasons seem pretty much in line with the reasons that have been given for NEU’s consolidation.
When considering the final reason, I'd suggest the following might be worth considering…
In 2015, 15 strategic alliances featured up-front payments worth US$100 million or more..... Interestingly, the upfront payments often included an equity purchase that represented a significant portion of the total payment, a practice that has become de rigueur for certain buyers, such as Celgene. In all, eight of the top 15 alliances by up-front value included equity stakes….
For buyers accessing biotech assets and technologies, buying equity — often at a massive premium — can be both P&L–sparing and a sign of long-term interest in the partnership….
Up-front strategic alliance payments to European biotechs continued to climb as a share of total deal value, reaching 9.7% in 2015…. As in the US, equity purchases accounted for a significant portion of cumulative deal up-fronts.
Two of the deals mentioned in the E & Y Report both occurred in December 2015. The first was between English pharma, Astra Zeneca, and private Dutch/US biotech, Acerta Pharma. The second was between American biopharma, Gilead Sciences and Belgo-Dutch biotech, Galapagos. Provided below are excerpts from reports of the deals. Please note, it's not so much the size of the deals I'm wanting to highlight; rather, the equity component and deal structure.
AstraZeneca is to buy 55 percent of privately held biotech firm Acerta Pharma for $4 billion to give it access to a new kind of blood cancer drug, boosting its long-term growth at the cost of a near-term hit to earnings.
AstraZeneca will pay $2.5 billion upfront, funded from cash and debt, with a further $1.5 billion paid either on receipt of the first regulatory approval for acalabrutinib or at the end of 2018, depending on which comes first.
Acerta shareholders will have the option to sell the remaining 45 percent of shares in the biotech company to AstraZeneca for approximately $3 billion, once acalabrutinib has been approved in both the United States and Europe.
Acalabrutinib is expected to be submitted for regulatory approval in the second half of 2016.
Galapagos NV and Gilead Sciences, Inc. today announced that the companies have entered into a global partnership for the development and commercialization of the JAK1-selective inhibitor filgotinib for inflammatory disease indications….
Galapagos will receive an upfront license fee of $300 million and Gilead will make a $425 million equity investment in Galapagos by subscribing for shares at a price of €58 per share, which represents a 20% premium as compared to the average share price over the last 30 days. After the issuance of the shares, Gilead will own approximately 15% of the outstanding share capital of Galapagos depending on the $/€ exchange rate at closing. Galapagos is eligible to receive further development, regulatory and commercial milestone payments up to $1.35 billion, plus tiered royalties on global sales starting at 20%, with the exception of the co-promotion territories where profits will be shared equally.
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