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Why Paysafe Stock Plunged by 10% on Friday

What happened

U.K.-based fintech Paysafe (NYSE:PSFE) had a lousy time on the U.S. exchange at the end of the week. On Friday, the company’s New York Stock Exchange-listed stock took a 10% hit on some dispiriting news about the future of those shares.

So what

Just after market close on Thursday, Paysafe announced that its board of directors has approved a reverse stock split. The company will reverse-split its common shares at a ratio of one new share for every 12 existing ones. The move will be effective almost immediately after market close this coming Monday, Dec. 12. The freshly reverse-split shares will begin trading the following day.

Prior to the board’s nod, the company’s latest piece of financial engineering was approved by shareholder vote at a special general meeting held on Thursday. The poll was overwhelmingly in favor of the measure, with approval of over 95%.

While the reverse stock split didn’t come as a surprise — Paysafe said in mid-November that the relatively uncommon move would be put to a vote — investors were nevertheless disheartened by the move. A reverse stock split is frequently a strong signal that a company is at serious risk of having its shares delisted. Paysafe currently trades at barely over $1 per share.

Now what

It’s important to note that any type of stock split, reverse or standard, does not change the market cap of the splitting party — it only shifts the number of shares and their price. Additionally, The Motley Fool’s research indicates that stock splits have little or no long-term effect on a company’s share price; rather, this depends much more on fundamental factors and outside factors such as the state of the macroeconomy.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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