Monday, December 12, 2016

Domino's Customers Eligible to Get a Piece of the [Corporate] Pie

It used to be that Friday night was Domino's Pizza night in our house . . . .  My, how things change if one lets 15-20 years slip by unnoticed.  No more of that in our house!

I guess Domino's is doing OK without us, however.  Third quarter 2016 financial results for Domino's Pizza, Inc., a Delaware corporation with common stock listed on the New York Stock Exchange, were favorable as compared to the firm's 2015 results, accordingly to the most recent quarterly earnings release.  Somebody's eating a lot of Domino's pizza, even if it isn't the Heminway family.

Apparently, Domino's wants to share the wealth--with its customers.  Co-blogger Haskell Murray pointed this recent press item out to me and co-blogger Ann Lipton in an email message last week, knowing full well that we both were or would be interested.  He was right.  Ann may have more to say on this in a later post.  (She also noted that other firms are adopting consumer benefit plans similar to the Domino's plan I describe here today.)

Of course, as a corporate finance/securities lawyer, I immediately had visions of Ralston Purina dancing in my head.  (Not quite like visions of sugarplums, in this holiday season . . . .  But I will take what I can get.)  So, I went looking for a registration statement/prospectus.  And I found what I sought!  No Ralston Purina-like Section 5 violation here.

Domino's has filed a shelf registration statement on Form S-3 and a Rule 424(b)(5) prospectus with the SEC (both filed December 2, 2016).  The plan of distribution is summarized in the prospectus in two short sentences:  "The Piece of the Pie Program is just one of the ways we are giving thanks to our customers. Through the Plan, we are offering our eligible customers the opportunity to be entered into drawings for a chance to be selected to receive ten Shares."  

The prospectus goes on to describe the way the plan operates plan in more detail.  Here's a slice off the top:

Shares for the Plan will be purchased in the open market by Fidelity Brokerage Services LLC and o Fidelity Capital Markets,Fidelity or, at our election, provided by us to Fidelity out of our authorized but unissued shares and will be initially deposited in a custody account in the name of the Company (“Custody Account”). Open market purchases will be effected by Fidelity, with all Shares to be credited to the applicable participant’s Fidelity Account. Fidelity has full discretion as to all matters relating to open market purchases, subject to the terms of our agreement with them, including the number of Shares, if any, to be purchased on any day or at any time of day, the price paid for such Shares, the markets on which Shares are purchased (including on any securities exchange, in the over-the-counter market or in negotiated transactions) and the persons (including brokers and dealers) from or through whom such purchases are made.

The Plan is not designed for short-term investors, as participants will not have complete control over the exact timing of redemption transactions or the market value of our Common Stock redeemed pursuant to a Piece of the Pie Award under the Plan. See “—Timing of Purchases.” The Plan is designed primarily for customers who have a long-term perspective and affinity for the Company and its values.

Notably, Domino's is planning to use shares that it repurchases in the market as well as, perhaps, authorized and unissued shares.  The use of market repurchases may signal management's belief that the market is undervaluing those shares.  It also is a means of preventing dilution to existing stockholders.  Public companies often use market purchases to fund dividend reinvestment and other equity-based employee benefit plans.

Customers can enroll in the plan on the Domino's Pizza app at no charge.  Here's what the overall offering looks like:

 . . . We have established the Plan to provide our eligible customers with the opportunity to be entered into drawings under the Plan to receive ten shares of our Common Stock as a thank you for being a loyal customer. Between December 5, 2016 and November 30, 2017 (the “Offer Period”), we will conduct 25 drawings per month. An eligible customer who has enrolled in the Plan prior to a particular drawing date will be automatically entered into that drawing. Eligible customers will not be eligible to participate in drawings occurring prior to the date of enrollment in the Plan. An eligible customer who is selected in a drawing to receive an award under the Plan will be presented with an offer (the “Offer”) to receive ten shares of our Common Stock (each a “Share” and collectively, the “Shares”) under the Plan (each a “Piece of the Pie Award”).

Redemptions of Piece of the Pie Awards will be fulfilled through Fidelity and will require that, as a condition to redemption of a Piece of the Pie Award, the selected eligible customer open a brokerage account with Fidelity into which the Shares can be deposited. Fidelity will obtain the Shares to be delivered upon redemption of Piece of the Pie Awards through open market purchases or, to the extent determined by the Company, delivery by the Company to Fidelity of newly-issued shares. A Piece of the Pie Award must be redeemed within 30 days of receipt, after which time such Piece of the Pie Award will expire if not previously redeemed. Piece of the Pie Awards are limited to ten Shares per selected eligible customer and no eligible customer may receive more than one Piece of the Pie Award. In order to enter for a chance to receive a Piece of the Pie Award, eligible customers must enroll in the Plan using their account on the Domino’s Pizza App or by registering on the www.dominos.com website. An eligible customer who enrolls in the Plan will only be eligible to participate in drawings occurring after the date of such enrollment.

I am a member of a bunch of consumer loyalty programs--for department and drug stores, restaurants, etc.  But few businesses from which I buy goods and services have offered me the opportunity to invest.  And none have offered me the opportunity to "win" an equity interest in a firm through a drawing sponsored by a consumer affinity program.  Query whether, if equity-based consumer benefit plans like this one are successful and continued to be valued, an exemption like Rule 701 will be promoted in Congress and at the SEC to ensure there is a registration exemption available for these offerings.

I will leave it at that for now.  But this is a phenomenon to watch, for sure.  And it fits in nicely with my Securities Regulation course next semester.  You never know where it might pop up . . . .

http://lawprofessors.typepad.com/business_law/2016/12/dominos-customers-eligible-to-get-a-piece-of-the-corporate-pie.html

Ann Lipton, Corporate Finance, Haskell Murray, Securities Regulation | Permalink

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