Beware. Don’t be coerced into selling your shares for less than they’re worth

Have you received an unsolicited letter offering to buy some of your shares? If so, tread carefully.

It’s not illegal to make an unsolicited offer to buy someone’s shares but there are pitfalls for the seller so be wary if you’re considering such an offer.

Government regulations specify that anyone who makes an unsolicited offer to buy shares off market must supply:

* a written statement setting out the market value of those shares on the day the offer is made; and
* a minimum of one month in which to accept the offer.

Failure to disclose the market price attracts a fine of $22,000 or two years' jail for each breach for individuals and a maximum fine of $110,000 for companies.

ASIC advocates the following safety checks:

1. Who is making the offer?
Read the offer carefully to see exactly who is making it. Some offers use official looking letterhead or names that sound deceptively like your stock exchange. If unsure, phone your company’s investor relations department to double check. You can also check the company's details through ASIC’s National Names Index

2. Why is the offer being made?
Perhaps there is public information about something that is expected to happen to your shares that you may be unaware of. Check company announcements on the ASX website or talk to a stockbroker.

3. Do you really need to sell?
Unless you really need the money now, you may do better by holding on. Consider what the shares are worth now, what they may be worth in the future, what dividends they may pay you, etc. If you need the money, consider all your options. The Corporations Act sets time periods in which an offer once made cannot be withdrawn. Use this time wisely.

4. What's the market price for your shares?
Market prices can change daily. Get an up to date price for your shares and compare it with what’s being offered.
If you hold shares that are not sold on the ASX or any other exchange the offerer needs to state the fair market value. As a shareholder, you are entitled to talk to the company you own the shares in about its plans, including possible listing on an exchange. Maybe other shareholders in your company would like to buy directly from you.

5. How much is the offer really worth?
Watch out for two types of ‘low-ball’ offers. The first offers significantly less than the share’s market value. The second offers to pay you by instalments spread over many years. With the latter, the length of time you may have to wait for the instalments means you usually get far less than selling on the market.

6. Compare the cost of selling on the market
Even if you hold only a few shares, you can sell through a stockbroker. Non-advisory brokers will sell the shares for about $55-65 over the phone, or $30-45 over the internet. ASX will give you their names.

Read the offer and determine what you would get after deducting fees and charges, and compare that with selling on market.

There are only a few situations when a ‘below market’ offer would make sense:

* You have compared all costs and you will end up with more cash if you accept the offer.
* You need to sell now, and your quoted shares have been suspended from trading or you hold unquoted shares that no other shareholders want to buy.

7. Be careful – consider getting advice
You may face immediate taxation consequences if you accept an offer payable in instalments over time. Consider getting independent advice from a licensed financial adviser or stockbroker before agreeing to sell your shares. Once you accept an offer and enter into a binding contract, you may not be able to change your mind.