Xoma Corp. (XOMA), a developer of therapeutic antibodies, announced a 1-for-20 reverse stock split to maintain the $1-per-share minimum bid price for continued listing on Nasdaq.

The reverse stock split becomes effective at 5:00 p.m. EDT on Monday, October 17. Xoma common shares will begin trading on a split-adjusted basis on Nasdaq on October 18.

Once the reverse split is executed, 20 Xoma common shares will be converted to one common share, and the stock price will increase 20-fold.

For example, if the stock closes at $0.40 per share on October 17, then Tuesday’s adjusted opening price will be $0.40 x 20, or $8 per share.

Investors who hold shares in a quantity that is not a multiple of 20 will be eligible to receive a cash equivalent. No fractional shares will be issued.

A reverse stock split, which is the opposite of a stock split, is a type of corporate action in which a listed company reduces the number of shares it has by a set multiple. As the number of shares decreases, the price increases proportionately to keep the valuation at the same levels.

A reverse stock split boosts a stock's price to higher levels by the set multiple without changing the company's overall value. (See also: What Are Reverse Stock Splits?)

Stock Under Pressure for a Year

Xoma's stock price has gone downhill during the past year. Xoma, which traded at $0.45 per share in October 2015, closed at $0.39 on October 14, 2016.

A company whose stock price remains consistently below $1 per share risks getting delisted from Nasdaq. Xoma’s reverse stock split will enable the Berkeley, California-based company to comply with the $1 minimum bid price requirement for continued listing.

Xoma's transfer agent, Well Fargo Shareowner Services, will provide the necessary details about the reverse split to eligible stockholders. (See also: Xoma Reports Success in Insulin Trials.)

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