Date: December 2, 2002
In the first instance, United Overseas Bank Ltd is reducing its stake in Haw Par Corporation Ltd by distributing to its shareholders 40.8 Haw Par shares for every 1000 shares of UOB shares held, with fractional entitlements to be disregarded. UOB has arranged for temporary trading of 40 Haw Par shares as a round lot. However, there will still be plenty of unnecessary odd lots created. For example, a shareholder with 2000 UOB shares will receive 81 Haw Par shares. Assuming that he sells 80 Haw Par shares as two round lots, what would he do with the remaining one share? In view of the minimum brokerage charge, he would presumably keep that one share indefinitely. This leaves Haw Par the burden each year of sending him, as well as thousands of similar shareholders, an annual report and two dividend cheques for a negligible amount. While some odd lots are inevitable in any arrangement, UOB could have avoided thousands of small odd lots with a formula of 40 Haw Par shares per 1000 UOB shares instead of 40.8 Haw Par shares.
In the second case, Comfort Group Limited and Delgro Corporation Limited have proposed a merger of the two companies. A Comfort shareholder will receive 1.245260513 Newco shares for each Comfort share held while a Delgro shareholder will receive 3.341812670 Newco shares for each Delgro share held. Such a formula guarantees plenty of unnecessary odd lots, and we should add that nine decimal figures represent spurious accuracy. Since it is the ratio rather than the absolute number of shares that is important, the formula could have easily been modified to one Newco share for each Comfort share and 2.684 Newco shares for each Delgro share. In this way, rather than converting both sets of shareholders into odd lot shareholders, only one set is affected.
We recall that when DBS Land and Pidemco merged to form CapitaLand, very awkward conversion ratios were also proposed. Fortunately, this was later changed to one CapitaLand share for every DBS Land share with the Pidemco conversion adjusted accordingly.
We urge all companies, their investment bank advisors and the approving authority to be more sensitive and careful in such situations and take measures to avoid the unnecessary creation of odd lots. While unnecessary odd lots may not be an issue with large shareholders, they are not only unfavourable to minority shareholders in terms of illiquidity and high brokerage charges in relation to their holdings, they also result in a costly exercise for companies to maintain many thousands of nominal shareholders stuck with very small odd lots.
Mr David Gerald J.
President & CEO
Securities Investors Association (Singapore)