On Dec. 28, shares of Pacific Capital Bancorp—parent company of First Bank of San Luis Obispo—are expected to increase 100-fold.
No, this isn’t some insider tip or indication that the bank is about to experience a fiscal explosion. Though the bank’s share price will likely skyrocket, its overall value will remain unchanged.
Here’s how it works: In response to threats of being delisted from the NASDAQ Global Select Market because its stock was trading at less than $1 for 30 consecutive days, the bank announced it planned to engineer a “reverse stock split.” Under the stock split, the bank would decrease its shares of stock to drive up the value of each individual share without changing the overall company value.
Pacific Capital Bancorp’s board of directors approved the split on Nov. 24. It will take effect Dec. 28. As of press time, the company was trading at about 25 cents per share. At that price, for example, the split would increase each share to $25.
Days after approving the split, the company also announced a rights offering, which gave shareholders the opportunity to purchase more than 382 million shares. The move generated about $76.4 million before expenses, according to a company press release.
A bank spokesman said the rights offering won’t affect the stock split, “except in the sense that there are more shares outstanding as a result of the rights offering, and all of those new shares will be subject to the reverse stock split.”
Pacific Capital Bancorp is based in Santa Barbara and oversees several Central Coast banks. It reported a loss of $61 million ($1.30 per share) in the second quarter of 2010, according to an Aug. 9 SEC filing. On Aug. 31 the company received $500 million after closing an investment deal with SB Acquisition Company LLC, a subsidiary of Ford Financial Fund, L.P.