A double dose of cosmetic surgery, market style

Friday saw two major global brands’ futures exposed by separate statements.

Electric vehicle giant Tesla is moving ahead with a share split to make its shares more attractive to investors, while Revlon, one of the biggest names in the global cosmetics business is reported to be on the verge of collapse.

Tesla’s move has been coming for months, but it has coincided with the mess Elon Musk is making with his ambitions for Twitter. It was emerged in a filing after trading had ended for the week on Friday.

It could be viewed as Musk trying to schmooze his shareholders via a move designed to bolster a share price down more than 30% year to date.

Tesla is proposing a three-to-one split in the form of a stock dividend, according to the regulatory filing made Friday.

The proposal will be put to shareholder vote on August 4 and, if approved, it would follow a five-for-one split in August 2020.

The market reaction Friday was in sharp contrast to Tesla’s last stock split in August 2020.

News of the 2020 split fuelled a 13% bounce in Tesla’s stock the next day, and an 81% rally in the three-week run-up to the split. By contrast, Friday’s news brought a modest 1% after-market gain after a fall of 3.1% in trading.

Tesla shares have been hit by investor fears that the company will end up becoming involved in Musk’s $US54.20 offer for Twitter and that Musk’s attention (he’s the driving force at Tesla) will be diverted by the Twitter deal.

Musk even sold $US8.5 billion of his Tesla shareholding to raise cash to be used towards the purchase, which helped put downward pressure on Tesla share price and worried his investors.

He has been waging a war with Twitter and many of his followers about his plans, all this while Tesla has been caught up in the Covid lockdowns in Shanghai, where the company’s big Chinese gigafactory is located.

Days after the lockdowns in Shanghai were lifted, they were imposed late last week in some areas after new Covid cases were discovered.

While stock splits make shares of a company cheaper for its employees and investors, some brokerages already allow customers to buy fractions of individual shares, which makes the benefit of stock splits less than in the past.

The filing revealed that board member Larry Ellison does not plan to stand for re-election. He is also one of Musk’s friends who have said they will contribute to the cash or equity the Tesla boss has to put up to make his $US44 billion takeover of Twitter.

“The board currently expects to reduce the number of board seats to seven upon the expiration of Mr Ellison’s term at the 2022 Annual Meeting,” Tesla said in the filing. If approved, directors’ terms would be staggered over two years.

Ellison owns a 1.5% stake in Tesla.

In the filing, the company wrote of the proposed stock split, “Our success depends on attracting and retaining excellent talent,” and that “highly competitive compensation packages,” offering every employee an option to receive equity, helped Tesla to do that.

“We believe the Stock Split would help reset the market price of our common stock so that our employees will have more flexibility in managing their equity.”

Analysts point out that a stock split is cosmetic and could mean that smaller investors feel they can afford the stock, but those investors are minuscule compared to major institutions.

Amazon has just completed a 20 for one split.

If the split were to happen today, its stock would be worth $US232 a share.

Tesla revealed an intention for a split in March, but did not announce a ratio.

On Friday it noted that its stock has risen 43.5% since its last stock split almost three years ago, although shares have tumbled 30% since it’s March announcement.

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Revlon shares, meanwhile, suffered their biggest one-day fall on record on Friday as Bloomberg and other business media reported that the company could be close to collapse.

The shares fell 53% on Friday to $US2.05 a share, taking the loss for the week to more than 54% and 82% year to date.

The slump came as distressed debt news outlet Reorg reported that the cosmetics empire is preparing to file for bankruptcy.

The company, controlled by billionaire Ronald Perelman, could file as soon as this week, Reorg said, citing unnamed sources.

Bloomberg reported on Friday that New York-based Revlon has struggled to remain relevant and stem falling sales amid competition from Estee Lauder Cos. and of smaller companies using social media to lure customers.

Covid-19 lockdowns sent demand for makeup plunging, especially lipsticks where purchases tend for predominate at bricks and mortar outlets which vanished in the pandemic.

In the three months to March, Revlon said “Reported net loss was $67.0 million in the first quarter of 2022, versus a $96.0 million net loss in the prior-year period. The lower net loss was primarily driven by higher operating income, partially offset by higher foreign currency losses of $4.5 million over the prior-year period, and higher interest expense of $3.2 million over the prior-year period.”

“Reported net sales were $US479.6 million in the first quarter of 2022, compared to $US445.0 million during the prior-year period, an increase of $US34.6 million, or 7.8%.”

The company claimed it had $US131 million in liquidity at March 31, but then revealed in April it was preparing to raise funds via an “ATM Offering through which we may offer and sell shares of our Class A common stock with an aggregate offering price of up to $US25 million, from time to time.”