DEF 14C: MSP Recovery, Inc. Announces Reverse Stock Split to Regain NASDAQ Compliance and Attract Investment

MSP Recovery, Inc. will implement a reverse stock split of its Class A and Class V common stock at a ratio between 1:3 and 1:30 to regain NASDAQ compliance and attract investment capital.

Summary

• MSP Recovery, Inc. is planning a reverse stock split of its Class A and Class V common stock.
• The reverse stock split ratio will range from 1:3 to 1:30, with the specific ratio and timing to be determined by the Board of Directors.
• The primary reasons for the reverse stock split are to regain compliance with NASDAQ listing standards, attract investment capital, improve marketability and liquidity, decrease the risk of market manipulation, and provide flexibility with respect to authorized Class A Common Stock.
• The company received a notice from NASDAQ on June 7, 2024, stating that its common stock had been below $1.00 per share for 30 consecutive business days, and it has until December 4, 2024, to regain compliance.
• The reverse stock split was approved by stockholders holding approximately 79.3% of the voting power of the company's outstanding common stock on September 25, 2024.
• The action will become effective when the Stock Split Amendment is filed with the Secretary of State of Delaware, no earlier than October 27, 2024.
• The Board reserves the right to delay or abandon the reverse stock split if it determines it is not in the best interests of the company and its stockholders.
• No fractional shares will be issued; instead, the number of shares will be rounded up to the nearest whole number.
• The reverse stock split is intended to be treated as a recapitalization for U.S. federal income tax purposes, with no gain or loss recognized by U.S. Holders.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the reverse stock split is presented as a necessary step to regain NASDAQ compliance and attract investment, it also carries risks and uncertainties. The company's future performance will ultimately determine the success of this action.

Positives

• The reverse stock split is expected to help the company regain compliance with NASDAQ listing requirements.
• It may attract a broader range of institutional and professional investors.
• The reverse stock split could improve the marketability and liquidity of the company's Class A Common Stock.
• It may reduce the risk of market manipulation of the company's Class A Common Stock.
• The reverse stock split will provide the company with flexibility with respect to its authorized Class A Common Stock for future issuances.
• Rounding up fractional shares to the nearest whole number is beneficial to shareholders.

Negatives

• There is no guarantee that the reverse stock split will result in a sustained increase in the per share price of the common stock.
• The reverse stock split may not attract brokers and investors who do not trade in lower-priced stocks.
• Some investors may view the reverse stock split negatively, which could adversely impact the market price of the common stock.
• The liquidity of the common stock could be adversely affected by the reduced number of shares outstanding after the reverse stock split.

Risks

• The market price per share of the common stock after the reverse stock split may not rise in proportion to the reduction in the number of shares outstanding.
• The reverse stock split may not result in a per share price that will attract brokers and investors who do not trade in lower-priced stocks.
• The reverse stock split may not increase the company's ability to attract and retain employees and other service providers.
• The market price of the common stock will also be based on the company's performance and other factors, some of which are unrelated to the reverse stock split.
• If the market price of the common stock declines after the reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split.
• The total market capitalization of the common stock after implementation of the reverse stock split may be lower than the total market capitalization before the reverse stock split.
• The liquidity of the common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.

Future Outlook

The company anticipates further issuances of shares of Class A Common Stock, subject to the satisfaction of applicable closing conditions including continued stock exchange listing compliance under the Yorkville Agreement. The Board believes that the availability of additional authorized shares of Common Stock is in the best interests of the Company and its stockholders and will provide us with additional flexibility, including having shares available for issuance for such corporate purposes as the Board may determine in its discretion, including, without limitation: exercise or conversion of securities convertible into, or exercisable for, shares of Common Stock (including outstanding warrants); future acquisitions; investment opportunities; stock dividends or other distributions; issuances in connection with compensation arrangements, including pursuant to future equity compensation plans; and future financings and other corporate purposes.

Management Comments

• The Board believes that the Reverse Stock Split will enhance our ability to regain compliance with Nasdaqs listing requirements.
• The Board believes that an increased stock price resulting from the Reverse Stock Split may also improve the marketability and liquidity of our Class A Common Stock.
• The Board believes that the potential increase in stock price resulting from the Reverse Stock Split may reduce the risk of market manipulation of our Class A common stock.

Industry Context

Reverse stock splits are a relatively common strategy for companies facing delisting from exchanges due to low share prices. It is often viewed as a short-term fix, and the long-term success depends on the company's ability to improve its financial performance and investor confidence.

Comparison to Industry Standards

• Many companies in similar situations, such as those in the biotechnology or small-cap technology sectors, have implemented reverse stock splits to maintain exchange listing.
• For example, companies like Ocugen and Cyren have recently undergone reverse stock splits to regain compliance with NASDAQ's minimum bid price rule.
• The success of these splits varies, with some companies experiencing a temporary increase in share price followed by a decline, while others have seen more sustained improvement.

Stakeholder Impact

• The reverse stock split will affect all stockholders uniformly, including holders of Class V Common Stock with respect to their ability to convert each share of Class V Common Stock into a share of Class A Common Stock.
• Percentage ownership interests, voting rights, and other rights and preferences would not be affected, except to the extent that the Reverse Stock Split would result in fractional shares.

Next Steps

• The Board of Directors will determine the specific reverse stock split ratio and the timing of the amendment.
• The company will file the Stock Split Amendment with the Secretary of State of Delaware, no earlier than October 27, 2024.
• The company will publicly announce the chosen reverse stock split ratio prior to the effective date of the Stock Split Amendment.
• The company will notify stockholders of the reverse stock split and provide instructions for exchanging stock certificates, if applicable.

Key Dates

Keywords

reverse stock split, NASDAQ compliance, common stock, Class A Common Stock, Class V Common Stock, stock split, listing standards, investment capital, market manipulation, liquidity