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A reverse stock split associated with a cash buyout is sometimes used as a means to eliminate small stockholders.

     

      When a company completes a reverse stock split, each outstanding share of company is converted into a fraction of share.

      A company may declare a reverse stock split in an effort to increase the trading price of its shares. For example, when it believes the trading price is too low to attract investors to purchase shares, or it is an attempt to regain compliance with minimum bid price requirements of an exchange on which its shares trade. In some reverse stock splits, the small stock holders are cashed out so that they no longer hold the company's cash. Investors may lose money as a result of fluctuations in trading prices following reverse stock split.

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