Webvan Sells Off as Reverse Split Fails to Deliver

In a last-ditch attempt to save itself from being banished from the Nasdaq, online grocer Webvan (WBVN Quote - Cramer on WBVN - Stock Picks) announced Thursday a reverse stock split and a sweeping restructuring plan featuring layoffs, a new top executive and the shuttering of its Atlanta operations.

Trailing Off Webvan tries to reverse stock slide

"They are doing what they need to do," says Tim Albright, an analyst at Salomon Smith Barney. "Their backs are against the wall." Albright says Webvan is still on Salomon's official coverage lists, but the company has largely fallen off the radar screen at many investment banks since shares have fallen below $1, the level required to remain a Nasdaq listing. (For the record, Albright has a neutral rating on the stock and his firm hasn't had a banking relationship with Webvan.)

Investors snickered, reasoning that reverse stock splits are typically a sign of desperation, and sent Webvan shares down 11 cents, or 46%, to 13 cents. This compares with an all-time closing high of about $25 reached in December 1999.

The restructuring plan, which came as the company said it lost 18 cents a share in the most recent quarter, a penny narrower than the 19-cent Thomson Financial/First Call analyst consensus, will result in almost 900 job cuts, or almost 25% of the company's 3,500-strong workforce.

The Foster City, Calif.-based company had $115 million in cash and marketable securities at the end of the first quarter, not enough to reach its goal of profitability by the second half of 2002. According to Robert Swan, who was named chief executive Thursday, the company needs about $25 million in additional cash, an amount it hopes to hit up some its venture capital investors for, he said in a conference call. It has hired Goldman Sachs to "assist in evaluating its financing and strategic alternatives."

At the same time, the company announced a 1-for-25 reverse stock split that is subject to shareholder approval at its June annual meeting. "At present, we have too many shares of Webvan securities outstanding," Swan said in a statement. "A reverse split of 25-to-1 will reduce our number of outstanding shares to approximately 20 million. We believe such a move is in the best interest of our shareholders."

But judging by the stock price, it seems investors may disagree.