By Amy Higgins
The Cincinnati Enquirer

With shares of many telecommunications companies trading for less than the cost of a half-hour long-distance phone call, an increasing number are asking their shareholders to approve reverse stock splits.

Reverse splits, traditionally a sign of a weak company whose only way of raising its stock price is consolidating its shares, are gaining acceptance in the aftermath of a burst stock bubble. The technology and telecom companies that did regular stock splits several times in the late '90s now are unwinding those moves.

Mathematically, investors come out even, with the market value of their holdings the same before and after the split. But psychologically, the effects on investors can vary from negative (because reverse splits signal company weakness) to positive (because a higher per-share price attracts more investors).

And for companies trading under $1, such as Kenwood-based LCA-Vision before it completed a reverse split Tuesday, a reverse split is also the only way some can prevent being taken off major stock exchanges.

"Some of these stocks cratered out so deeply and so long that the reverse split was the only way to pull themselves back out again," said Pete Sorrentino, chief investment officer at Bartlett & Co. downtown. "Companies that would think twice about it are now to the point where they're saying `anything to get us back in the game.' "

Indeed, 114 companies listed on the Nasdaq Stock Market have implemented reverse splits, topping the 109 total for all of 2001, according to the Wall Street Journal. On the New York Stock Exchange, where listing requirements lean toward larger-capitalization, nontech stocks, 12 companies have completed or announced reverse stock splits, on pace to meet or exceed last year's total of 14. The average reverse split is a 1-for-10 move, up from the 1-for-7 average last year.

The Swedish cell phone maker Ericsson is a classic case of multiple splits. The company was trading on the Nasdaq for about $40 in May 1998 when a 2-for-1 split brought the price down to $20. The price continued to rise to about $60 in May 2000 when the company did a 4-for-1 split to bring the price down to $15 a share.

Ericsson's price then fell as far as 63 cents a share, before a 1-for-10 reverse split boosted the price 10-fold in October. Friday, Ericsson closed at $10.07.

And there are less dramatic examples:

Lucent Technologies' shares were trading above $100 in early 1999 when it split 2-for-1 - doubling the number of shares subsequently worth about $50. The shares closed Friday at $1.21. A reverse split at a yet-to-be-determined ratio is expected to raise the price to $15 to $25.

Nortel Networks Corp. split 2-for-1 in May 2000 when shares were trading above $100 a share. Friday, they closed at $1.40 - but the company said last month that it hopes a spring reverse split, likely 1-for-15, will raise the price to $10 to $20.In LCA-Vision's case, shareholders approved a 1-for-4 reverse split, raising the company's share price from 58 cents to $2.32 Tuesday. Shares closed Friday at $2.30.

Although not a telecommunications firm, the laser vision correction provider faced the same issues of having a low share price: little institutional investor attention and the risk of being delisted from the Nasdaq market.

Alan H. Buckey, LCA's chief financial officer, said the company hopes the price will continue rising, to above $5 a share, where it will begin to attract institutional investors who typically don't look at stocks priced under $5.

"There's a lot of money in mutual funds, a lot of buying power," Mr. Buckey said.

"It's a significant portion of investing dollars controlled by those institutions. And the more demand there is for a stock, the higher the price will go."

Indeed, Standard & Poor's recently published a study of low-priced stocks - such as those traded on the small-cap and over-the-counter markets - and concluded that stocks with a price less than $5 are more volatile, thinly traded and have higher transaction costs.

Another factor in LCA-Vision's reverse split was the threat of being delisted from the Nasdaq National Market, and instead being traded on the Nasdaq Small-Cap Market. The national market allows faster trading with fewer trading costs - but only stocks trading consistently above $1 can be listed there.

"The bottom line is that a common reason a company gets into trouble is that its minimum bid price falls below $1," said Scott Peterson, Nasdaq spokesman. "A reverse split is a perfectly legitimate way of getting into compliance with listing standards."

The New York Stock Exchange also requires its listed companies to have a 30-day average closing price above $1.

Broadwing Inc., although trading under $5 a share since May, said recently that it wasn't considering a reverse split because it hasn't faced being delisted, as its telecom brethren have. The 52-week low for Cincinnati Bell's parent was $1.15 in October. Shares closed at $2.49 Friday.

Other local companies whose stocks also have fallen into single digits - such as General Cable Corp., Elder-Beerman Stores Corp., LanVision Systems - also haven't fallen far enough to jeopardize delisting. None has announced reverse splits.

But Ericsson, Nortel and Lucent all announced their reverse splits when their stock prices fell far enough to violate the Nasdaq's or NYSE's rules.

"There's a lot of strong companies, with the markets being as weak as they are," Mr. Buckey said, "having trouble staying listed on the national markets, which is where you want to be."

E-mail ahiggins@enquirer.com