No Pain, No Gain: Big business has little time for the small investor

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The Independent Online

The City seems to be growing increasingly reluctant to accommodate the small investor. At one time, those with relatively modest shareholdings, if not welcomed with open arms, were accepted with a degree of alacrity. But not any more.

The City seems to be growing increasingly reluctant to accommodate the small investor. At one time, those with relatively modest shareholdings, if not welcomed with open arms, were accepted with a degree of alacrity. But not any more.

Last week, I referred to mm02's attempt to get rid of its small shareholders. Now another Footsie constituent, Rolls-Royce, has jumped on the bandwagon. The aero-engine-maker is not being as blunt as the mobile phone group. It is merely inviting shareholders with up to 500 shares to sell or donate their holding to charity. It is also offering a facility allowing them to increase their stake. The Rolls share services are conducted by post - not the best way to buy and sell shares.

Rolls says it welcomes all shareholders - regardless of the size of their investment. It is merely offering a low-cost dealing service because many shareholders may find it "inconvenient or uneconomical to hold a small number of shares". There is a temptation to accept Rolls' generosity at face value. It is merely, it implies, doing the little player a good turn. The cost of servicing small shareholders is not mentioned. Yet I suspect it is a major influence. Rolls already pays dividends. And it is the signalled cost of sending dividend cheques to all its shareholders that is partly behind mm02's action.

There is another side to the equation that illustrates Rolls' muddled (to put it politely) thinking. It was one of the Thatcher privatisations of the 1980s. Then, small shareholders were seen as an essential part of the investment scene, as the old Tory government, aided and abetted by the City, sought to create a shareholder democracy. Rolls arrived in 1987, selling shares at 85p, with a second call at 85p. The minimum subscription was 150 shares and I suppose it is those souls who took up such a modest entitlement who are now in Rolls' sights. But shareholders who continued to show their faith and backed the company all the way since its flotation are also in the firing line. Any 150 shareholder who has since taken up the two rights issues and converted all their dividends into shares would still have less than 400 shares. Clearly, investors who were greeted with enthusiasm in 1987 are now past their sell-by date. I wonder how long it will be before some bright spark dreams up a way to compulsorily acquire small shareholdings.

It seems to be overlooked that many small shareholdings are made even smaller by capital reorganisations. More and more companies are returning cash to shareholders. I do not wish to discourage such enterprise. But it often means shares are cancelled. And that can make quite a difference to an already modest stake, say, of a few hundred shares.

Halifax, the biggest of the building society conversions that has since become HBoS, indulged in such an exercise. So has bus and train group Stagecoach, a constituent of the No Pain, No Gain portfolio. Indeed, small shareholders in the old Six Continents, a former portfolio member, have experienced a demerger as well as capital changes. The former Bass brewing empire (which had already reduced the number of shares each shareholder held) then split into two - InterContinental Hotels and pub chain Mitchells & Butlers. Anyone who had, for example, 300 shares in 6C (once worth some £3,000) has been reduced, without selling a share, to 176 M&B shares. No doubt, M&B wonders about the merits of servicing such small shareholdings.

I am merely making the point that what was once a seemingly acceptable level of shareholding is now viewed with some hostility. Many of the alleged small shareholdings in mm02 are the direct legacy of taking up the minimum entitlement in the last BT issues. I suppose the final insult will be if BT attempts to buy out its small shareholders.

Finally, a reader has asked about Scotty, the video telephone group, once the high-flying Motion Media. It is now a small company, with a host of small shareholders. Figures are due, but the shares were suspended from the market on Thursday. Since its soaraway days in the dotcom boom, Scotty has frequently disappointed. It is yet another example of the difficulty of translating high hope and high tech into old-fashioned cash.

Over the years, many investors have made - and lost - money on the shares. They were once about 300p. Now they bump along at 2.5p. It may be worthwhile picking up a few as a lockaway. They may come right. Whatever happens, Scotty should, unlike the giants of the City, be grateful for any interest - from both large and small investors.

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