Q. We’re concerned about the growing cost of servicing our thousands of retail shareholders, given their negligible holdings (below 5 percent). It makes better business sense in the long term for us to buy back as many shares as we can at a premium, but what factors should we consider before moving ahead with such an offering?
A. The cost of servicing retail shareholders has now been estimated at $20 per shareholder annually – but there are several ways to reduce costs, such as the ‘sell all’ program, whereby qualified account holders have the opportunity to sell all the shares they own. ‘Roundups’ offer odd-lot shareholders the opportunity to buy additional shares to bring their holdings up to 100 shares. ‘Threshold plans’ are offered to shareholders that fall within a specific range of holdings (for example, 25 shares).
In a direct market resale, the company’s transfer agent accumulates the tendered shares into round lots and sells these into the market in larger blocks. The company does not have to fund the share purchase whereas a straight buyback or treasury repurchase requires that shares be purchased directly from the shareholder with funds provided by the company. Finally, be careful of the perception a share buyback might create: it may signal that growth is slowing down for the company if it has nothing better to do with its capital than invest in its own stock.
Q. A sell-side analyst recently requested a meeting with our CEO. I decided it wasn’t worth a one-on-one meeting at this point but invited the analyst to our annual analyst day. Since then, he has started coverage and written negatively about our company’s future prospects. How do I balance safeguarding management’s time with meeting analysts who need guidance?
A. If analysts are interested in following the company, they should have equal access to management, especially at the all-important early stages. Naturally, management availability and the time frame in which the analyst plans to initiate coverage must be considered. I am not sure if this analyst would have been more favorable in his comments had he been able to meet with management, but it would be less of a question had he received some face time.
It seems fair and prudent to help bring the analyst and the management team together at the early stages to ensure that any misperceptions are addressed. This also allows the management team to make an assessment of an analyst’s ability to accurately follow the company. In future I would recommend spending more time educating new sell-side analysts through the IR department, if management’s time is at a premium.
Hulus Alpay is senior vice president of New York-based IR and PR firm Makovsky & Company.
