Stocks splits rare
for isle firms

Central Pacific Bank's parent plans
to split its stock 2-for-1 next month

By Dave Segal

Stock splits have taken on a new meaning these days, and it has nothing to do with getting additional shares at a reduced price.

Once considered by shareholders to be the ultimate reward in a bullish environment, many stocks are splitting today, without management's help, as the 3-year-old bear market has driven down many companies' share prices 50 percent or more.

Yet, there are still more than 200 companies splitting the old-fashioned way, including Central Pacific Bank parent CPB Inc., which will split its stock 2-for-1 on Nov. 12. The Honolulu-based financial institution is the only company on the three major stock exchanges scheduled to split next month and one of just two -- JetBlue Airways Corp. is the other -- due to split before the end of the year.

The only other Hawaii company to issue additional shares this year was City Bank parent CB Bancshares Inc., which in June declared a 10 percent stock dividend -- in essence an 11-for-10 stock split -- for the second year in a row. Thus, investors who owned 100 shares of CB Bancshares' stock had 110 shares at roughly a 10 percent reduced price after receiving the dividend.

Seeing double

The declaration of a stock split often results in an immediate rise in a stock, but Hawaii companies have received mixed near-term results over the years. In addition, the stocks’ performance a year after the split varied as well. For a larger picture of the below table, click here.


*The first date the stock trades under its split-adjusted price.

**No longer publicly traded; purchased by BNP Paribas SA in December 2000.

***In previous 2-for-1 split in November 1997, stock fell 0.3% between declaration and ex-date and was off 19.8% one year after ex-date.

#Technically a 10% stock dividend.

##In previous 10% stock dividend, stock gained 11.9% between declaration and ex-date and was up 31.2% one year after ex-date.

Source: Bloomberg News

Before 2002, it had been at least three years since other Hawaii companies last split their shares. First Hawaiian Bank parent BancWest Corp., which no longer is publicly traded after being acquired by Paris-based BNP Paribas SA in December, was the last Hawaii company to halve its stock when it split 2-for-1 on Dec. 16, 1999.

Earlier, Maui Land & Pineapple Co. split 4-for-1 on May 1, 1998; Bank of Hawaii Corp., then called Pacific Century Financial Corp., split 2-for-1 on Dec. 15, 1997; Alexander & Baldwin Inc. split 2-for-1 on June 3, 1988; and Hawaiian Electric Industries Inc. split 2-for-1 on May 24, 1984. None of the other publicly traded Hawaii companies have ever split their stock.

Many analysts have long downplayed the importance of stock splits because the worth of an investor's holdings doesn't change. Simply put, a shareholder with 100 shares of a $50 stock that splits 2-for-1 would have 200 shares of a $25 stock after the split. Either way, the value of the holdings is $5,000.

Still, there's no getting around the psychology of the stock split because many investors believe it portends good things for the splitting company.

"If you examine the balance sheet, it would be identical in dollar value after a split as it would be before so the split really hasn't changed anything," said Dave Zerfoss, Bank of Hawaii senior vice president, who manages more than $7 billion in assets for the bank's investment department. "But then there is the issue of psychology. There are some individual investors who are dissuaded from owning companies with high absolute dollar prices. It's illogical and it's not based on fact or analysis."

Yet, companies continue to split their stock price ostensibly for three reasons: 1) To make the share price more attractive to potential investors; 2) To increase liquidity; and 3) To signal to investors that the company feels positive about its growth prospects.

Not surprisingly, the most stock splits on the three major exchanges during the last eight years, according to Chicago-based research firm Morningstar Inc., was the 595 recorded in 1998 when the bull market was beginning to pick up steam. The number refers to regular splits and not stock dividends, as is the case with CB Bancshares, or reverse splits, which occur when a company reduces its number of outstanding shares to boost the price of its stock. Reverse splits often occur on a low-priced stock when a company is trying to reach an exchange's price-listing requirement.

This year, barring any end-of-the-year announcements, there will be 209 regular stock splits.

Clint Arnoldus, chairman, president and chief executive officer of CPB, said the meteoric rise of the bank's stock this year led to his decision last month to announce a split with the shares then trading at $44.41. The stock has since risen an additional 13.5 percent to $50.41, a 71.4 percent year-to-date gain that is easily the best performance in the Bloomberg Honolulu Star-Bulletin index.

"We'd like to see more retail shareholders, and usually somewhere in that $20 range is where you get a lot more interest," Arnoldus said. "When you get around 50, where ours is, it gets more expensive.

"We also don't have a lot of liquidity in the market and doing a stock split increases the liquidity in the stock. If the stock is not in circulation for investors to buy, it doesn't benefit anyone."

Dean Hirata, senior vice president and chief financial officer of CB Bancshares, likewise cited the increase of liquidity as one of the driving forces behind the bank's successive stock dividends.

"For us, the 10 percent stock dividend is based on where our share price (then at $38.00) was at that time," Hirata said. "The reason for our 10 percent dividend is to strike a balance with those investors looking for a cash dividend (CB Bancshares also declared a 10-cent cash dividend at the time) and those investors looking for profits to be reinvested in the company."

CB Bancshares, which has since increased its cash dividend to 11 cents a share, also benefits from issuing a stock dividend because it gets to conserve cash needed for operations. One of the advantages for investors is the stock dividend isn't taxed until it's sold, whereas cash dividends have to be declared on that year's tax return.

Stock splits aren't for everyone, however. Take, for example, Berkshire Hathaway Inc., which is run by billionaire Warren Buffett, one of the richest people in the world. Buffett doesn't believe in splits and hence the company's Class A stock now trades at a staggering $73,000 a share.

Meanwhile, Hawaiian Electric Industries Inc., which will have the highest stock price of any Hawaii company after CPB's shares are cut in half, said a stock split currently is not under consideration.

"There are no plans to split the stock at this time," said Robert Clarke, chairman, president and CEO of HEI. "I think the stock price at about $48 is reasonably affordable for most investors to buy at least 100 shares."

One local money manager, Barry Hyman of Financial & Investment Management Group Ltd. in Wailuku, Maui, goes as far as to say that stock splits are nothing more than a gimmick.

"Management is trying to influence investors by making the stock appear cheaper," Hyman said. "This tactic works best to small investors who care about such insignificant things as the price per share of a stock irrespective of the value of it. Stock splits invariably occur after a company's stock has made an extraordinary advance.

"To me, splitting a company's stock after it has made such an advance is almost an admission that management thinks the stock has gone as far as it can go based on the company's actual performance and prospects. As somewhat of an act of desperation, they are using the gimmick of giving shareholders two 50-cent pieces in exchange for one of their dollars in hopes such a tactic will encourage more people to buy the stock. The stock price is insignificant by itself. What counts is the value of the company compared to the value of its stock."

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