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Agere Pitches Reverse Split

Agere Systems Inc. (NYSE: AGR.A) plans to request a reverse stock split at the company's shareholder meeting in February, according to a proxy statement filed Monday.

The board will ask for a split ratio of 1 for 10, 1 for 20, 1 for 30, or 1 for 40, according to the proxy. Such a split would increase the stock's price -- $1.36 at Wednesday's closing -- accordingly.

Agere's recent SEC filings include a stack of information sent to shareholders concerning the reverse split. Officials don't explicitly state why they want the split approved, but as a hint, they note that a higher share price might be more attractive to institutional investors and could therefore increase the stock's level of trading.

News of the split sent Agere's stock down 15 cents (10%) to $1.36 on Monday. Why? Possibly because reverse splits don't always work. They initially raise the stock price -- making reverse splits useful to companies in danger of delisting -- but investors sometimes send the price even further down afterwards.

One recent example is Broadwing Corp. (Nasdaq: BWNG) -- the former Corvis Corp. -- which underwent a 1-for-10 reverse split on Oct. 8, closing at $7.95 that day (see Corvis Splits for Broadwing). The stock spent the ensuing four weeks headed south, with closings as low as $5.23. The stock has rebounded a little, closing at $7.00 per share yesterday.

More dramatically, Redback Networks Inc. (Nasdaq: RBAK) underwent a 1-for-73 reverse split on Jan. 2 and saw its stock price halved the next trading day, to $7.80 from $16.06. Redback closed at $4.96 yesterday.

Analysts still like Agere, although that's partly because the company is making deep cuts in response to a tough year. Announced plans include layoffs of up to 1,100 employees and the sale or closure of an Orlando, Fla., fabrication plant. (See Agere Posts Q4 Loss, Agere Stung by 3G (Again), and Agere Wields Jobs Axe.) Still, the company has a long way to go before all its business segments get healthy. Analyst Dushyant Desai of CE Unterberg Towbin wrote in an October report that Agere "is taking all the right steps" but recommended investors stay "on the sidelines" for now.

In a separate item up for shareholder vote in February, Agere's board hopes to combine the two classes of the company's common stock. A second class of stock was created in order to keep the spinoff from Lucent Technologies Inc. (NYSE: LU) tax-free, the proxy states.

Elsewhere, the proxy notes that Agere CEO John Dickson made $800,000 in salary and $320,000 in bonuses for fiscal 2004, which ended Sept. 30.

— Craig Matsumoto, Senior Editor, Light Reading

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