11–6. Phase Out Small Investors
A recent study by PriceWaterhouseCoopers indicates that it costs a public corporation more than $19 each year in servicing costs for each of its shareholders, regardless of the number of shares held. Since many shareholders only own a few shares, a large part of this expense is needed to support a group of inconsequential shareholders.
Some of the expense can be eliminated by conducting a periodic “odd-lot” shareholder program. Under this program, a company contacts those shareholders with very small holdings and either offers to buy back their shares at a modest premium or asks the shareholders to buy enough additional shares to bring their holdings up to a minimum of 100 shares. Though the offer is generally taken by fewer than half of these small shareholders, it gradually reduces the number in this group of shareholders.
The trouble with this program is the cost of periodically contacting shareholders to make them the offer, especially since there tend to be diminishing returns from the program, with the initial offer clearing out the largest number of shareholders, while the remaining pool of investors is less likely to accept later offers. However, one can spread out the timing of successive rounds of offers to shareholders in order to lower the cost.