Nasdaq as Support Group?

The over-the-counter exchange has given new hope to companies threatened with delisting.

A posh Washington, D.C., hotel conference room, two businessmen, and a congenial lawyer were hardly what CFO Eric Bauer had been expecting for his hearing — or interrogation, as he’d conceived of it — before the Nasdaq Hearing Panel last May. After all, the company’s stock share price, then just 48 cents, had been loitering below the Nasdaq National Market’s $1 minimum for more than six months, and Bauer had already received a letter from the exchange threatening imminent delisting. The letter, although worded clinically enough, had been “a slap in the face,” he recalls.

To Bauer’s relief, the last-ditch plea for mercy turned out to be a lively, hour-long discussion of business strategy between the panel and’s team of Bauer, CEO W. Thomas Gimple, and outside counsel Paul Rowe. The Nasdaq people “were very pleasant,” says Bauer. “They were not necessarily the adversary as much as the facilitator.”

In this friendly atmosphere, Bauer and colleagues presented a strategy to boost the ticket seller’s share price within 90 days — first by showing how operations were progressing against plan; second, by pointing to a $17 million recapitalization that Bauer had cemented with the company’s original venture capital investors just days before the hearing; and third, by describing a 1-for-8 reverse stock split, slated for July. One week later, Nasdaq approved a 90-day reprieve. carried out its strategy, and in early March its stock was trading close to $4 a share. After that, however, the share price began sliding again. As of press time, the share price of had dropped to $2.22.

Such give-and-take between listed and lister will be repeated in months to come, as once-promising companies struggle to maintain their publicly traded status. In 2001, Nasdaq dumped 390 companies, including a number of outfits that rushed to go public during the bull market with little more than a high concept and a dubious business model. “Nasdaq’s clearing out the riffraff,” comments Paul Blumenstein, a partner with law firm Gray Cary, in Palo Alto, California, who has worked with four companies threatened with Nasdaq delisting. “But if you can make a reasonable case for why your stock is undervalued, they have some incentive to keep you on.”

Indeed, some speculate that Nasdaq is feeling the same pain as its clients, given the 64.1 percent year-over-year decrease in net income Nasdaq reported in the third quarter. According to Securities and Exchange Commission filings, Nasdaq relies on annual listing fees for about 10 percent of its total revenues. So when the market relaxed some of its listing rules last fall, some saw an ulterior motive. “I think it was a business decision on their part,” says Ken Janke, CEO of the National Association of Investors Corp.

But Nasdaq spokesman Michael DeMeo insists that the SEC-approved rule relaxation was “not because we’re afraid of losing all those ‘poorly performing’ companies. I think those companies will eventually weed themselves out.”

Instead, he says, Nasdaq is just trying to help its clients through the terrorism-exacerbated economic slump. “We’re here to help the listed companies,” says DeMeo. “We know that being delisted really hurts a company and its shareholders.”


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