Today, BEBE announced that it is planning to VOLUNTARILY delist from the NASDAQ and move to the OTC market. As a result of this news, the stock closed down almost 14%. In my totally biased opinion, BEBE’s voluntary delisting is a big nothing burger.
What Does It Mean to Delist?
Usually when a company delists, it’s a bad thing. It’s bad because the company usually can’t meet filing requirements. Like keeping its share price above $1.00. Or not filing financials in a timely manner. However, in this case, the delisting is completely voluntary. They’re doing it because of the costs. It’s expensive to be listed on the NYSE or the NASDAQ.
This makes sense to me because BEBE doesn’t have much of a business or a company anymore. It’s basically a licensing entity. This means that it doesn’t design, market, or produce clothes. All it does it license the bebe brand and then gets a cut of the royalties. So far, royalties have been around $2mn/quarter on a net basis. Given how small the royalties are, any cost savings will result in meaningful profitability increases.
Frankly, bebe shouldn’t exist as a public stock at all. Which is why I believe it’ll eventually be bought out by Bluestar Alliance, which owns 50% of the current JV. The licensing deal has only just begun, so it makes sense for Bluestar to see how well the brand performs before buying out the entire stake.
What’s the Impact of a Delisting?
BEBE will still trade as a stock you can buy and sell. You’ll still get quarterly financials. So what could change?
Well, BEBE will likely get kicked out of indexes that only consider companies listed on the NYSE, NASDAQ, and NYSE Arca. Wait, BEBE’s not in any indexes! Okay, there’s nothing BEBE will get kicked out of. That’s good news.
Another risk is if large institutional holders are restricted from owning OTC stocks. Wait again! There’s not many of those either? Royce and Associates is currently listed as the #5 holder, with just over 200k shares owned. I’m assuming BEBE is in its micro-cap fund, which probably already invests in other OTC stocks.
Vanguard may be forced to sell, but they only have 90k shares as the 7th largest holder. Blackrock, at #8 with 80k shares, may also be forced to sell. Today, over 200k shares were traded, so if there was any forced selling it should be done with soon.
Big Nothing Burger
In summary, there may be a little bit of forced selling, but not much considering insiders own the majority of the stock. The ticker stays the same, with the only difference being the exchange changes. See, one big nothing burger.
Disclosure: I own BEBE stock. The opinions expressed are my own. Investing is risky, especially stocks with less than $100mn market cap. Please do your own research before making your own investments!