EXPLAINED – Odd Lot Offer

by | Dec 12, 2023

WHAT IS AN ODD LOT OFFER?

An odd-lot offer is a financial transaction.

It is where a company offers to buy back small quantities of its shares from shareholders who hold fewer shares than the typical trading unit.

Usually it’s under 100 shares.

In the context of stock markets, an “odd lot” refers to a number of shares that is less than the standard trading lot.

Here are the key points about an odd-lot offer:

  1. Target Audience:

    • Aimed at shareholders who own fewer shares than the standard trading unit (commonly 100 shares).

  2. Purpose:

    • Typically initiated by a company to reduce the number of small shareholders and simplify its shareholder structure.

  3. Offer Terms:

    • The company specifies an offer price at which it is willing to buy back the odd lots of shares. This price may be at a premium to the current market price.

  4. Voluntary Participation:

    • Shareholders are not obligated to participate; it’s a voluntary decision on their part.

  5. Cost Reduction:

    • Companies may implement odd-lot offers to reduce administrative costs associated with managing a large number of small shareholders.

  6. Shareholder Choice:

    • Odd-lot shareholders can decide whether to sell their shares to the company at the offered price or to retain their shares.

  7. Tax Implications:

    • Companies may structure odd-lot offers in a way that has specific tax implications for shareholders. It’s common for the offer to be treated as a return of capital rather than a dividend.

  8. Approval Process:

    • In many cases, such offers require approval from the company’s shareholders, often obtained at a general meeting.

Let’s use an example with City Lodge in 2023. 

 

1. What’s Going On:
As of October 16, 2023, there were a bunch of small-scale shareholders in City Lodge, each holding fewer than 100 shares.

These investrs are referred to as “Odd-lot Holders,” which make up 58.22% of all City Lodge shareholders.

However, when you look at the total shares they own, it’s just a tiny 0.06% of the market.

Now, managing these tiny portions costs a lot, creating a headache for everyone.

2. The solution
To solve this issue, at City Lodge’s board of directors are suggesting an Odd-lot Offer.

This means they want to buy back the small amounts of shares from these Odd-lot Holders, making life simpler for everyone involved.

3. So what do these Odd-lot holders get?

If you’re one of these Odd-lot Holders, you get a chance to cash at a price that’s 5% more than the average value of City Lodge shares over the past 30 days.

It’s like a special deal, and you won’t have to pay any fees to make the transaction.

4. How it works
To make this happen, City Lodge needs approval from its shareholders.

They discussed it at the Annual General Meeting on November 23, 2023.

If the plan gets a green light, Odd-lot Holders can decide to sell their shares at the offered price or keep them.

5. The tax story
They considered the Odd-lot Offer isn’t a dividend but more like a return of capital.

This decision has some tax implications, so they suggest you chat with your tax expert for the details.

City Lodge wants to simplify its shareholder list, and if you’re an Odd-lot Holder, you have a choice to make – take the deal or keep riding the City Lodge wave.

Trade well, live free.

Timon Rossolimos
Founder, MATI Trader

 

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