Standard Management Corp. shares are sliding into a dangerous price range as the Indianapolis-based company tries to raise $25 million to continue growing its health-services business.
The stock price dipped briefly below $1 earlier this month in NASDAQ trading. It rebounded to close at $1.17 Feb. 10 before slipping back to $1 Feb. 15.
NASDAQ imposes a $1 minimum bid price for shares to continue trading on its exchange. Market watchers say Standard is in no danger of suddenly being delisted-a process that takes months-but the former insurer stands on shaky ground.
"Dollar stocks ... that's not exactly a vote of confidence that people feel real comfortable with, and they don't get down that far unless there are some significant issues," said Mark Foster, chief investment officer for Columbus-based Kirr Marbach and Co.
Standard shares have descended steadily from the $4 range over the past year, as the company reported a stream of quarterly losses topping $1 million.
Last June, Standard exited the insurance business by selling Standard Life Insurance Company of Indiana to Louisville-based Capital Assurance Corp. for $79 million. It then made four acquisitions to bulk up its U.S. Health Services Corp. subsidiary, which it launched in 2002 to distribute pharmaceutical products.
Late last month, Standard announced plans to raise $40 million to make additional acquisitions and build working capital. At the time, it said CRT Capital Group, a Connecticut firm that works with distressed companies, would help raise the money.
Standard announced Feb. 16 that it would seek $25 million instead, and CRT Capital would no longer play a role.
The company may raise $10 million through a private placement of stock at a discounted price and raise the remainder by issuing debt, according to documents filed with the Securities and Exchange Commission.
The company also has put up for sale 4-1/2 acres of land next to its North Pennsylvania Street headquarters in Carmel. The property is listed at $400,000 per acre, or a total of $1.8 million.
Standard CEO Ronald Hunter declined to comment on his company's stock price, but said thorough a spokesman that it bought the land as an investment and now wants to realize a return.
While selling additional stock would provide the company with additional cash, it also might further depress the stock price, since it would dilute existing shareholders' ownership in the company, Standard acknowledges in SEC filings.
"Existing shareholders are going to take a fairly big hit to see this thing through," Foster noted.
He also wondered who might be interested in buying the stock. He noted that most institutional investors shy away from shares that trade for less than $5.
If the stock fails to maintain an average price above $1 for 30 days, it could trigger NASDAQ's delisting process. The market has a number of standards companies must maintain to continue trading, and the minimum share price is a common way companies fall short.
"The standards are designed to make sure the companies have at least some threshold of legitimacy," said Randy Heron, an associate professor of finance at the Indiana University Kelley School of Business.
If a company falls out of NASDAQ compliance, the market issues a deficiency notice and provides a grace period to address problems. If it decides to remove a company from the exchange, it also provides an appeal process.
About 250 companies left NASDAQ each year from 1999 to 2002, according to a study by Ingrid Werner, an Ohio State University finance professor, and another researcher.
In addition to failing to maintain a high enough stock price, companies disappear from NASDAQ because of acquisitions, bankruptcy or failure to meet other exchange financial standards. About 3,300 companies trade on NASDAQ.