Citi Plans Reverse Split & Share Conversions (C)

If you thought things were going to get quiet at Citigroup, Inc. (NYSE: C) after the 200% run up of late, they aren’t if this morning’s news comes to fruition.  The company has issued a share exchange offer for outstanding convertible and non-convertible preferred and trust preferred securities and it is going to seek a reverse stock split.

Citi has entered into agreements with the private holders of convertible preferred securities with an aggregate liquidation value of approximately $12.5 billion issued in January 2008 and this reflects the terms committed to and announced by Citi on February 27.  Citi is in the process of finalizing definitive documentation of the U.S. Treasury’s commitment to exchange a portion of its preferred securities with an aggregate liquidation value of up to $25 billion for interim securities and warrants.

The net result is that Citi is seeking to exchange $27.5 billion in public and private preferred securities with a commitment from the U.S. Treasury to convert up to an additional $25 billion of its preferred securities for common stock.  That takes the grand total to $52.5 billion which would ultimately be converted to common stock.

Citigroup did not disclose the ratio, but the company plans to seek approval for a reverse stock split to keep its shares from being traded at such a low share price.  This is a common strategy of companies that are in trouble with low share prices, but you rarely see it from companies that are the size of and that are important as Citi.

Citi shares closed up at $3.08 yesterday, which is a gain of more than 200% from the lows just a couple weeks ago.

JON C. OGG