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Friday, September 15, 2006

The Delisting Disease: KLA-Tencor


KLA-Tencor builds tools that help the semiconductor industry monitor the manufacturing of chips. Yesterday, it received notice from Nasdaq that it is out of compliance with the listing requirements of the exchange. It is late filing its 10-K and could be delisted. The company will go through the appeals process, which can take several months. This puts it in a foot race between its ability to get out its annual report and its ability to draw out its Nasdaq appeal.

The culprit for the late filing is an investigation into options grant dates at KLA-Tencor.

The news from the company again raises the specter of mass delisting from the Nasdaq if options investigations by companies, the SEC, and, in some cases, the US Attorney, do not conclude before the appeal process at the Nasdaq. Each company has its own time table. Some may make it under the wire, and some may not.

The list of companies at risk continues to grow, as does the risk for their shareholders. Many institutions and funds cannot own shares in companies that do not trade on major exchanges. A delisted company could face an exodus of institutional shareholders which could be catastrophic for share prices.

At this point, the range of the issue of delisting extends to some very large companies. Their shareholders face similar risks to those who hold KLA-Tencor. Apple, Broadcom, Juniper, PMC-Sierra, and Nvidia have been caught up, among others.

There is some real risk here, and, in some cases it will be played out between now and the end of the year. The Nasdaq waits for no man.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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