Bright Health Group is mulling a reverse stock split after it shares dipped below the price threshold to remain listed on the New York Stock Exchange, the health insurance company announced Monday.
The insurtech received a notice from the New York Stock Exchange Dec. 6 that, because its average stock price has been below $1 for the past 30 days, the company is in danger of being dropped from the exchange if it does not raise its share prices within six months.
Bright Health alerted the stock exchange that it intends to increase its stock's value and will consider all available options, a spokesperson wrote in an email. The NYSE notice does not affect ongoing operations, the spokesperson wrote. Bright Health aims to achieve profitability next year on an adjusted earnings before interest, taxes and depreciation basis, the company previously advised investors.
The insurtech's stock price has fallen 95.3% since its public debut in June 2021 and opened trading at 81¢ Tuesday.
Bright Health is considering a reverse stock split, which would entail consolidating shares to increase their overall value.
“Anybody with a brain doesn’t get fooled by it,” said Harry Kraemer, a professor at Northwestern University’s Kellogg School of Management and executive partner with Madison Dearborn Partners, a private equity firm. A reverse stock split wouldn't improve Bright Health's capital position and would signal to investors that the company is in financial trouble, said Kraemer, a former CEO of the medical device company Baxter International.
Companies pursue reverse stock splits as a last-ditch effort before declaring bankruptcy, said Erik Gordon, a professor at the University of Michigan Ross School of Business. Most firms that go through the process are not successful, he said. An exception was Citigroup, which executed a reverse split in 2011 and rebounded.
But because investors view reverse stock splits as negative indicators, companies typically try to raise independent financing and seek acquisition partners before looking into a reverse stock split, Gordon said.
In October, Bright Health raised $175 million through stock sales to shore up its shaky finances. The company is winding down its health insurance exchange business and most of its Medicare Advantage operations after reporting more than $800 million in losses so far this year. Bright Health also worked with regulators in Georgia and at least three other states to "rectify potential instances of noncompliance,” according to its quarterly report filed with the Securities and Exchange Commission Nov. 14. The insurer made a last-minute transfer of $2.2 million to its Georgia subsidiary the same day to satisfy the state’s financial requirements for insurers, according to state financial filings.
“It's super-embarrassing,” Gordon said.
The alternative may be worse. Companies that are delisted are moved to over-the-counter exchanges, where they must market the availability of their shares and individual investors must go through brokers if they want to trade shares.
“The advantage of being listed on the New York Stock Exchange is that there's just more liquidity, more people can trade in your shares. Theoretically, that provides the opportunity for a higher stock price,” said Brad Ellis, senior director of Fitch Ratings.
