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NASDAQ gives smaller firms a break

Last update: November 07, 2008

The selloff in September and October slashed share prices of companies big and small. And the damage done particularly to smaller companies has prompted the NASDAQ exchange to temporarily suspend one of its "continued-listing'' standards.

The move gives several Minnesota public companies time to resuscitate their flagging stock prices. And that's a good thing. Twelve companies from the Star Tribune 100 ranking of the largest Minnesota-based firms by revenue are trading at under $1. Five of those have been delisted. But the temporary suspension has bought other companies more time to get back in compliance with the minimum bid listing requirement.

Granite City Food & Brewery, which operates casual dining restaurants, received a warning letter from NASDAQ saying that it could be delisted because it's in noncompliance with the $1 per share minimum-bid requirement for continued listing.

A company may receive a delisting notice from NASDAQ if its stock trades below $1 for 30 consecutive days, or if it fails to meet other requirements. NASDAQ has handed out dozens of similar notices to public companies and was poised to issue more when the exchange decided to suspend enforcement of the minimum bid provision until Jan. 16.

The consequences of delisting are significant because it reduces a company's access to capital, credit ratings may be downgraded and it may become harder to buy and sell shares. Analysts may drop coverage of delisted firms. Also, some money managers may be required to sell shares if they fall below certain thresholds; others may not be allowed to invest in companies that are not listed on a major exchange.

"Once you go under $10 per share, some mutual funds won't own a stock, and once it goes under $5, more funds won't buy it, and once it goes under $1 there are even fewer interested," said Clint Morrison, research director at Feltl & Co., which makes a market in several dozen small companies. "It's ironic, because as the price goes down on some good companies ... they get cheaper to own but there are fewer buyers. And at times like these, some people, if they invest at all, it might be in 3M or GE, not some 50-cent stock."

Down markets conspire most against small companies that have debt. Any revenue declines tend to magnify earnings dropoffs. And they are perceived as the most volatile to own and the hardest to sell. Down markets temper bold investors even in companies that are doing well.

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Every Sunday, a Star Tribune reporter takes a look beyond the headlines at the challenges and opportunities facing a Minnesota company. On Wall Street, it's the kind of information that would be "Heard on the Street"; here in Minnesota, it's "Heard on the Prairie."

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