What happened
Shares of Naked Brand Group (NAKD), which is an online retailer of intimate apparel, fell sharply at the open of trading on Dec. 22. The drop was just shy of 19% at one point in the first half hour of trading, but by 10 a.m. ET had settled at around 12.5%. There was a notable news item this morning, but it really didn't change anything about the company. However, an update from Dec. 21 should probably be looked at more closely.
So what
Before trading started on Wednesday, Naked Brand group announced it had completed a 1-for-15 stock split. Stock splits change the number of shares outstanding, but they don't actually change the percentage of a company that shareholders own. So, in the long term, they usually aren't a material issue except for the impact they have on investor sentiment. That said, There's another bit of news here that has to be taken into consideration. This particular stock split was undertaken to facilitate Naked Brand Group's acquisition of Cenntro Automotive Group.
Image source: Getty Images.
Cenntro Automotive makes commercial electric vehicles and other such auto tech. That's not a typo, it's an electric vehicle company. The main purpose of this deal appears to be for private Cenntro to get listed on an exchange without having to go through the initial public offering (IPO) process. The deal was approved by shareholders on Dec. 21. After this acquisition is completed, Naked Brand Group will keep its ticker, but change its name to Cenntro. So, Naked Brand Group isn't going to be the same company that it has been for much longer. The acquisition is expected to be completed before the end of 2021.
Now what
The first takeaway here is that Naked Brand Group's stock price decline looks like it is related to the stock split, which has the direct effect of reducing the stock's price but little else about the company. However, longer-term, investors need to think about the Cenntro merger, which will completely change the company.
