On Sept. 10, stockholders of Amgen Inc. will receive two additional shares of the biotechnology concern for every share they now own. In other words, Amgen is having a 3-for-1 stock split.
Amgen, based in Thousand Oaks, also announced plans to change the end of its fiscal year to Dec. 31 from March 31.
Both moves, which dozens of other companies also make each year, appear to be little more than paper-shuffling exercises. But companies can save money if a change in their fiscal year pares their paperwork costs. As for stock splits, the cheaper per-share price, companies say, helps attract more investors to their shares.
But do stock splits actually improve the fortunes of the companies and their stockholders? Market researchers say no: Stock splits by themselves do not have a significant effect on the stock's future performance. In other words, splits are little more than providing five nickels for a quarter.
"We found no superior performance" in stock prices stemming directly from splits, said Al Hadhazy, senior analyst at the Institute for Econometric Research, a Fort Lauderdale, Fla.-based firm that has studied how stocks behaved up to a year after a split.
In the case of Amgen, its stock has more than doubled so far this year in tandem with the company's rapid growth, and Amgen's rationale for splitting its stock is the one most companies use when announcing a split.
Amgen's executives believe that the split, by automatically cutting the price of Amgen's stock from about $150 a share to, say, $50 each, means the shares will appeal to more investors, particularly small investors. A split does increase the stock's liquidity--meaning that there are now more shares in public hands, making them easier to trade.
However, the problem with the stock-split theory is that institutional traders--insurance companies, pension funds and the like--invest such huge sums in stocks that they are little concerned whether they are trading a single $100 share or two shares of $50 each.
Hans Stoll, a finance professor at Vanderbilt University, said research has shown that unless a split is accompanied by a hike in the stock's dividend or some other award, it seldom provides a kick to the stock's price. "They concluded that the benefit of a split is actually associated with something else," Stoll said.
Some post-split stocks do chalk up nice gains, of course. But that usually reflects the company's operating performance--the same factor that drove the stock up originally and prompted the split, Hadhazy said.
Indeed, Amgen initially split its stock 2-for-1 in June, 1990, after the stock had jumped to more than $40 a share. Since the split, the stock has soared sevenfold as Amgen's first two biotechnology drugs received federal approval for sale. (Amgen's stock closed Monday at $146.50 per share.) The drugs are Epogen, which fights anemia in patients with kidney disease, and Neupogen, an anti-infection drug for chemotherapy patients.
Splits don't cost much--Amgen's chief financial officer, Lowell E. Sears, figures that the company's split will cost less than $10,000 in extra paperwork--but they can be costly for their shareholders.
As Sears acknowledged: "The individual stockholder is sometimes going to pay more to acquire the same dollar value of shares if the stock is split." That's because some brokerage firms' commission rates are partly tied to the number of shares being bought or sold--regardless of the trade's overall value.
One full-service brokerage firm in Los Angeles, which didn't want to be identified, said its commission on 500 shares of a $90 stock would be about $495. But the commission jumps to about $600 on 1,000 shares of a $45 stock, even though $45,000 of stock is being traded in both cases.
"That's the bad side of the picture," Vanderbilt's Stoll said.
Among the people averse to splits is renowned investor Warren E. Buffett, billionaire chairman of the Omaha-based holding company Berkshire Hathaway Inc., whose stock closed Monday on the New York Stock Exchange for $8,800 a share.
Buffett has written in the company's annual reports that he's against splits because he wants his investors to focus on Berkshire's long-term business results and not worry about short-term changes in its stock price.
As for Amgen's shift of its fiscal year to a calendar year ending Dec. 31--despite a cost of about $300,000--the change will simplify the company's budgeting chores and save time and money because most of its marketing partners, such as F. Hoffmann-La Roche Ltd. in Europe, are already on a calendar year.
"We were getting into multiple budget and planning cycles," Sears said. "By switching to a calendar year, we've eliminated the redundancy."
Amgen's desire to change its fiscal year begs the question: Why do companies end their fiscal years on dates other than Dec. 31 in the first place?