SPAB Reverse Stock Split?

A company called SPAB recently underwent a reverse stock split?

I understand a normal stock split, where in order to lower the price of the shares you get 2 shares for your 1...

BUT, why on earth would anyone give 10 shares back to the company for 1 share, if the stock price remains the same?

Wouldnt you just be throwing away money?

I was thinking about picking up a bit of this stock for a LONG HAUL investment (10 years or so), but eh... this reverse stock split thing confuses me.

<<<why on earth would anyone give 10 shares back to the company for 1 share, if the stock price remains the same?>>>

The stock price will not remain the same. When the 1:10 split occurred for SPAB the stock price went from $0.21 per share to to $2.00 per share.

http://finance.yahoo.com/q/hp?s=SPAB&a=1...

<<<Wouldnt you just be throwing away money?>>>

No. Stock splits, including reverse splits, have no impact on the value of what you own. If you owned 0.00002% of a company before a split, you will still own 0.00002% of the company after the split.

<<<I was thinking about picking up a bit of this stock for a LONG HAUL investment (10 years or so), but eh... this reverse stock split thing confuses me.>>>

The purpose of a reverse split it almost always to increase the price per share.

Some exchanges have a minimum price per share to remain listed. Some finds have a minimum price per share for stocks they own.

Since being delisted usually causes the stock price to go down, and since increasing the number of potential buyers has the potential to increase the stock price, a reverse split is likely to be better than doing nothing.

Many institutional investors and mutual funds, for example, have rules against purchasing a stock whose price is below some minimum, perhaps $5. An extreme case would be when a share price has dropped so low that it is in danger of being delisted from its stock exchange.

It is also possible that a reverse stock split could be used as a tactic to reduce the number of shareholders. In a hypothetical 1-for-100 reverse split any investor holding less than 100 shares would simply receive a cash payment and no shares of stock. If the resulting number of shareholders has then dropped below some threshold, it may be placed into a different regulatory category.

In the UK we call this a consolidation. Usually you have to be careful when a small company consolidates it's share price. It invariably goes down.