In this market you wouldn’t expect companies to turn investors away, but that’s exactly what some are doing. Why? To save money, of course, says Scott T. Gallagher, senior vice president at Georgeson Shareholder, a New York shareholder-communications firm. “Public companies are looking under every rock to eliminate hidden costs.”
Odd-lot shareholder programs — in which companies offer shareholders with fewer than 100 shares a chance to either sell them at discounted fees or buy enough to hit 100 — are making a comeback. Georgeson has conducted more than 700 of them.
Companies might be surprised by just how many shareholders fit the bill. On average, 55 percent of a company’s investors hold fewer than 100 shares, but they represent less than 1 percent of shares voted, says Gallagher. It costs a public corporation more than $19 annually in servicing costs for every shareholder, regardless of how many shares he or she holds, according to a recent study by PricewaterhouseCoopers.
John Hancock Financial Services Inc. recently launched a voluntary odd-lot program. So far, the insurer says, it’s “hitting its target” for eliminating odd-lot shareholders, but the company recently extended the deadline to participate by a month.
The average redemption rate is 30 percent to 40 percent, according to Gallagher, but investors don’t always jump at the offer. International Absorbents Inc., a small-cap pet-care products company in Bellingham, Wash., recently launched an odd-lot program involving a share buyback. The company identified 90,000 shares held by odd-lotters, but at the deadline, only 3,198 shares had been redeemed. “Compared to what they bought the stock for, it wasn’t worth it for a lot of them to do a trade,” says Charles Tait, director of corporate communications. The odd-lot offer was $2.35 per share.
But the program, which ended on September 9, had a positive, if unexpected, outcome. “A lot of people decided to hold on to their shares,” says Tait. “And some even bought more after I spoke with them.”