If you are a Travelzoo (NASDAQ: TZOO) shareholder but own fewer than 25 shares, management would really appreciate it if you would just go away.

That's the upshot of Tuesday's announcement out of the of the online travel-deals company, which says that in an effort to "reduce its shareholder account administration costs," the company intends to conduct a reverse/forward split. The intent of such an action is to shake out small stakeholders in the company, forcing them to cash out their shares. The method by which it happens is as follows:

  • First, Travelzoo will conduct a 1-for-25 reverse stock split -- meaning that for every 25 shares individuals own, they will receive one new share of Travelzoo. A shareholder owning, for example, 26 shares would receive one new share, plus the cash value of the one old share (or fraction of a new share) remaining. A shareholder owning 24 or fewer shares will lose all of these shares, receive cash only as compensation, and effectively be cashed out of his or her stake in the company.
  • Immediately following the reverse split, Travelzoo will undo it by once again splitting each new share into 25 old shares.

In this way, Travelzoo hopes to shake out all of its smallest shareholders, reduce the total number of its shareholders from more than 90,000 currently to fewer than 10,000 after the reverse/forward split, and pocket the savings of not having to mail out annual reports to those 80,000-plus very small shareholders anymore.

There is, however, nothing to prevent these small shareholders from immediately buying back in by purchasing a few shares after the reverse/forward split.

link

Fool contributor Rich Smith and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.