Bargain for odd-lot shareholders as firms buy up dribs and drabs.
It costs $10 to $15 a year for US West Inc. to keep in touch with each of its 1.5 million shareholders. The expense of printing, handling, and mailing all those annual reports, quarterly reports, dividend checks, and other communications is the same, whether a shareholder owns five shares or 500.
This is why Denver-based US West, one of seven new companies created by the divestiture of American Telephone & Telegraph Company, is in the midst of a program to buy back the stock of investors who hold ''odd lots'' of 99 or fewer shares. According to Andrew Wold, manager of investor relations at US West, 1.2 million of those 1.5 million shareholders are odd-lotters.
Many of these people became odd-lotters at the moment of Ma Bell's breakup. At that time, an investor holding 100 shares of the pre-divestiture AT&T received 100 shares of the ''new'' AT&T and 10 shares of each of the seven regional companies, so these new phone companies have a lot of odd-lot shareholders. In fact, Mr. Wold says, the average number of shares held by people who have accepted the US West offer so far is about nine.
Another AT&T spinoff, Pacific Telesis, completed its repurchase program a month ago.
The new phone companies aren't the only ones using odd-lot repurchase programs to cut investor relations expenses. A number of industrial and service corporations have been doing this for some time, although the pace has picked up in recent years as businesses look for new ways to cut costs. At many large companies, odd-lotters account for 70 to 90 percent of all shareholders, but they may own fewer than 5 percent of the outstanding shares.
For the shareholder, then, as well as the company, an odd-lot repurchase can be attractive, as long as it fits in with the individual's investment and financial goals. Unlike municipal and corporate bonds, which often have ''call'' provisions, giving their issuers the right to buy them them back after a certain amount of time, the stock buyback programs are voluntary. And one person who now owns stock in eight telephone companies wrote US West: ''I am turning down your offer. This is the first time I've ever had a portfolio.''
For those who do accept these offers, the major incentive is the saving on brokerage commissions. If you own just five or 10 shares of a stock that isn't performing all that well, a $40 or $50 minimum brokerage fee to sell the stock can more than wipe out any gain you may have made, or make any losses greater.
In an odd-lot repurchase program, the company buying back its shares pays all the brokerage costs, usually by hiring a broker or investment banker to handle the work on a bulk-rate basis. Some companies report a 40 percent participation rate among the shareholders they have reached. Even a modest response to a buy-out offer can save several thousand dollars every year.
''I think it's a boon to investors,'' said William Freund, a financial planner with Prescott, Ball & Turben, a Cleveland brokerage. ''If you have two shares of a $10 stock, you don't want to keep it, but there's no way you're going to sell it'' when there is a brokerage commission to pay. Often, Mr. Freund says, the issuing corporation will not only pay current value for the stock, plus all brokerage fees, but it will throw in a little bonus, perhaps $10 or $20. ''The premium doesn't need to be very high for me to be interested,'' he says.
Corporations embarking on a repurchase program do not expect all shareholders to take part. In fact, many high-visibility corporations, such as soft-drink, food, or automobile companies, like having thousands of shareholders as a way to promote their products, boost public relations, and protect themselves against unfriendly takeover attempts.
The price the shareholder gets for his or her shares, says George Hust, executive vice-president at Dean Witter Reynolds, the brokerage subsidiary of Sears, Roebuck & Co., is often the average price of the stock on the day the company or its agent receives it from the shareholder, or it may also be that day's closing price.
If you are an odd-lot shareholder with fewer than 100 shares and receive a letter inviting you to sell your stock back, should you accept?
If you like the company as an investment and plan to acquire more shares, then you will probably decline. In fact, says Stephen Leightman, vice-president and national sales manager at Prudential/Bache Securities, this may be a good time to become a ''round-lotter'' and buy more shares to take you over the 100 mark.
If you receive an odd-lot repurchase letter, you might also want to look into what's happening to the company today. If it can reduce the number of shares outstanding in any significant way, particularly if there aren't that many shares to begin with, it may be able to show a stronger financial position in the event of a takeover - either by it or against it.
If this is the case, and your broker or investment adviser believes a merger is in the offing one way or the other, you may be better off holding onto your stock for the time being.
Otherwise, a repurchase program could be painless way to unload some of those odds and ends in your portfolio.
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