Our Top-Ten Tips On Conducting A Successful Small-Shareholder Cash-Out Program

Help Your Really Small Shareholders To Cash Out…Now; Before Your A-M Record Date:

1. Years ago, we advised; “Stop calling these programs - and thinking about them - as “odd-lot programs: Focus instead on what constitutes an ‘OK investor’ for your company – based on dollars invested – and set your target audience accordingly.” It’s still good advice.
2. Don’t buy into a totally off-the-shelf program: Definitely, one-size and one shape may be good for the vendors - but it does not suit all companies well, as we think you’ll see as you read on.
3. Get a statistical breakdown of both your registered and street-name holders by size of holding - with the number of holders in each sub-group and the actual and cumulative percentage of ownership represented by each group as you go up the ownership ladder; say from less-than-one to 1 share, 2-5 shares, 6-10…on up to say, $500 worth or $1000 worth…or whatever level seems to constitute a “good” or “OK investor” from your company’s perspective. Then target the groups that will allow you to “optimize” your program – by taking out the folks who create the biggest percentage of the expense – while creating the least amount of value for you. It’s not at all unusual to find that 80% of the odd-lotters by number hold less than 15 shares each – and less than 4% of the shares held by ALL individual investors combined!
4. Do some mathematical modeling to see if you won’t have the best results by charging your target-class NOTHING: If you can save a “blended” $6 to $10 a year per holder eliminated - on TA fees, Broadridge fees, printed matter, envelopes, postage and “miscellaneous charges” – you’d be smart to design a program – and find a provider to manage it – that will cost the shareholders in this class nothing to cash out. Pay the agent’s fee yourself…and you’ll generally get your money back in year-one, or no later that year-two if you target correctly. Participation is bound to be high, since everybody likes a free service. And guess what? We’ve seen lots of companies that could afford to give a cash bonus for cashing out, or maybe to match or even double each donation to charity - in light of the savings going forward.
5. Keep the program as simple as possible: Years back we used to advise; “Never conduct an odd-lot buyback program without a rounding-up feature.” Today, sad to say, we’ve got to advise; “Don’t waste your time.” In today’s environment, the fewer choices you give people, the likelier they are to pick one, and act on it.
6. So today, we say - in a tip we learned from ShareGift USA – “If you want really small shareholders to do take action, offer three simple choices: (1) Do nothing…(2) Check the charity check-off box and donate…or (3) Sell all shares and send a check.
7. Make the program as hassle-free as possible: A huge number of really small shareholders simply can’t find the certificates – OR…they’re too busy to look…OR to fill out a lot of forms. Get an insurance policy to cover really small amounts that MAY show up one day or get your agent to get one – and let people simply check a box to say they’re “lost” – then cash’em out.
8. Consider developing a separate strategy for small shareholders who are in a DRP or DSPP – or in a “book-entry plan” because of an old spin-off. This class alone may be big enough to take a big bite out of your really small-owner population – WITHOUT the need to make an offer to all the street and registered holders in the share range you select. Most such plans are written so that participants can cash out at ANY TIME: If they have some certificated shares at home, they’d have to send them in of course…or check that box to say they’re “lost.” But often, a simple letter from you to them, outlining the cost and bother of managing immaterial holdings, and explaining what they need to do to cash out, and enclosing the form and a return envelope, is all that’s needed to get them to do so. Here too, consider waiving the usual sales fees for the littlest accounts.
9. In any event, do not close off the ability to sell through the DRP while the offer is in progress – as some providers have talked issuers into doing: Allowing vendors to sell a service to shareholders that they can get for free – or at a much lower fee through a DRP or DSPP – is immoral, and a major breach of the duty of fairness an issuer OWES its investors.
10. Whether you are launching a broad-based program – or simply targeting Plan participants – stress that it’s a “limited time offer” – and issue no more than one reminder…while there’s still ample time to act on it.