A few years ago, a $10 trade seemed like a $50 mink -- an impossibility. Nowadays, a number of brokerage firms offer trades for under $10.
These cut-rate brokerage commissions make
recent odd-lot buyback offer seem not-so-enticing.
Nevertheless, it's still a good deal for some investors.
In September, Lucent announced a voluntary program to allow shareholders who hold less than 100 shares of its stock to sell them for a maximum of $10 per account.
These Lucent shareholders have until Oct. 29 to take advantage of the company's offer, which calls for a processing fee of 50 cents a share up to the $10 maximum.
These odd-lot offers are relatively common, says Vincent Di Costa, senior vice president at
, an investor-communications firm. A company with a lot of incidental shareholders would use an odd-lot offer to reduce costs and give these shareholders a cheap way out of the stock. "About 20 to 30 happen in a year," Di Costa says.
The number of Lucent shareholders eligible for the odd-lot offer could populate a major city.
Between 1.2 million and 1.3 million of the company's 4.6 million shareholders own fewer than 100 shares, says investor relations director Andrew Backman. But these small-time investors control only about 1% of the company's 3.1 billion outstanding shares.
The corporate spinoff from
that created Lucent is responsible for this massive roll of small investors. When Lucent was separated from AT&T in April 1996, AT&T shareholders received roughly one-third of a Lucent share for every share of AT&T that they owned. Since then, Lucent has conducted two 2-for-1 stock splits. Still the company has thousands upon thousands of shareholders who own only 15, 10 or even five shares of stock.
For a company, these small investors can be costly in terms of administrative costs. A company has to mail annual reports and proxy statements to each shareholder, plus it has to pay a fee for any account registered directly with the company's transfer agent. It can cost a company $5 to $10 annually to maintain each shareholder account that is registered with the company, Backman says.
But Backman insists that cost-cutting wasn't Lucent's primary incentive. The company is simply trying to accommodate small shareholders who have been asking for an inexpensive way to unload their shares, he says.
Lucent shareholders should take a long, hard look at this offer. Despite the overall low cost of Internet trading, there are lots of reasons to take advantage of this $10 trade.
Of the up to 1.3 million shareholders with fewer than 100 Lucent shares, more than 900,000 have their shares registered directly with the company -- records maintained by Lucent's transfer agent,
Bank of New York
. That means that these people probably don't have brokerage accounts.
It would be prohibitively expensive, burdensome or simply impossible to open a brokerage account to sell a few shares in one stock.
, for example, offers $8 Internet trades. That's certainly cheap. But you need a minimum of $2,000 to open an account.
Most full-service firms won't open an account without a lot of money down. And you could also wind up burning most of your money if you try to sell a few shares of a stock through a full-service broker and get charged full commission. Say you only have three shares of Lucent, which is currently trading at about 64. You'd get $192 from that trade. If you're paying $100 in commissions, you're losing 52% of your money.
However, if you are good customer, your broker might cut you a deal to unload a handful of shares, meaning the trade will be free. "As a broker, chances are you're going to accommodate that trade if it's a good customer," says one veteran broker.
One the other hand, if your traditional broker wants to get rid of you, he'll probably charge full commission.
Maybe you already have an online broker that charges you very little. In that case, Lucent's offer may not matter. The cost savings may be so little that you can just sell when you feel like it.
Or maybe you just don't want to sell what has been a very good investment. Since the end of 1996, Lucent's stock has climbed 438%, or more than five times the 76.5% rise of the
. Why look around elsewhere for that kind of return?
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