Domino’s Rewards Customers With Free Stock in Season of Giving

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By Michael Greene

Domino’s Pizza Inc. has found a creative way to reward its customers this holiday season—by giving them a slice of the company.

The company earlier this month announced that it could potentially be handing out over half a million dollars’ worth of shares to members of its “Piece of the Pie Program.” Starting in December, Domino’s every month over the next 12 months will randomly select 25 members of its loyalty program to win 10 shares of company stock.

The program gives Domino’s best customers “something that is substantial enough to show how we really value” them, Jenny Fouracre, Domino’s public relations director, told Bloomberg BNA.

Domino’s isn’t the only company in the stock-giving spirit this year. T-Mobile US Inc. in June offered existing subscribers a free share, along with additional stock for referring new customers.

A representative from T-Mobile didn’t respond to a request for comment.

However, before other companies decide to use stock giveaways to entice and retain customers, they should keep in mind a slew of corporate governance concerns.

“In short, there is a lot for boards of directors to think about here,” Joan MacLeod Heminway, a law professor who teaches corporate finance and governance at the University of Tennessee at Knoxville, told Bloomberg BNA.

Regulatory Hurdles

Corporate stock-giveaway programs must comply with applicable state and federal securities laws.

Over a decade ago, federal regulators cracked down on internet companies that gave visitors to their websites “free stock,” because the offerings were never registered with the Securities and Exchange Commission.

T-Mobile and Domino’s filed prospectus supplements with the SEC in connection with their stock giveaways.

Since these loyalty programs involve the offer and sale of securities, companies must register the offering or find an available exemption, Heminway said. “And, to the extent that state law is not preempted by federal law, the corporation also must comply with similar state law registration requirements.”

Additionally, corporate boards must take into account whether there is authorized stock to issue, whether they are receiving the right kind and amount of consideration for the issuance, and whether approval of the program is consistent with their state law fiduciary duties, Heminway said.

Whether other companies follow in T-Mobile and Domino’s footsteps will depend on whether the stock giveaways correlate with customer retention or increased sales, Heminway said.

Use of Specific Broker-Dealers

One interesting factor is that Domino’s and T-Mobile’s programs tie the customer or investor to using a specific brokerage company, Ann Lipton, a corporate law professor at Tulane University Law School, told Bloomberg BNA.

T-Mobile said in its SEC filing that its plan will be “fulfilled through open market purchases of Shares by LOYAL3 Securities, Inc.”

Loyal3 is a financial services provider that allows customers to buy partial shares in their favorite companies without paying fees.

The theory behind Loyal3 is that brands can improve their relationship with customers by turning them into share owners, Lipton said. So Loyal3 “is betting that in fact more companies will offer these kinds of programs.”

Domino’s stock redemption, according to its SEC filing, will be fulfilled by Fidelity Brokerage Services LLC, which will obtain the shares “through open market purchases or, to the extent determined by the Company, delivery by the Company to Fidelity of newly-issued shares.”

“Fidelity was involved with the process right from its early stages and has been a tremendous partner in the development of this program,” Fouracre told Bloomberg BNA.

Domino’s program suggests that Fidelity is also getting a boost, Lipton said, “which makes me wonder how Fidelity is eyeing Loyal3’s business model.”

To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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