A lot of agonizing tonite. I'll throw my two cents in again. These are all my opinions.
1. ASND mgmt has been in talks for some time for a strategic partner (say, since August or September). During this time, mgmt certainly did not want to sell shares, because the strategic partner would have known. A bad tactical move.
3. On or about Oct. 15, mgmt. reached the general outline of a deal with an aquiring entity. I assume the terms were to be set in a signed writing, call it a letter of intent, by the end of October.
4. At that time, believing that material non-public information would not exist until the terms of the trx were put in writing at the end of October, insiders sold shares (they did so in relative droves between the 15th and the 31st...none whatsoever so far in November).
a. I spoke today with an attorney at the SEC today. Mgmt. cannot sell unregistered shares (which is what they own, thru options) when they are in possession of material non-public information.
b. Mgmt is always aggressive in their view of "materiality," i.e., it ain't material until it is really, really definite. It ain't definite til it is in writing.
c. Mgmt knew that a letter of intent or some such thing would not be prepared until the end of October, so they sold beforehand, when nothing was yet finite or "material."
d. All selling apparently stopped by October 31. A signal that something was put in writing by then and therefore characterizable even to mgmt. as material non-public information.
5. Why did mgmt sell in October, even in the face of a merger that would increase stock price?
a. Liquidity. For reasons set forth below, they will not be able to sell later, whether for XMAS gifts or taxes in April.
b. After the merger is announced, mgmt technically can sell. After all, material non-public information no longer exists. However:
i. Mgmt needs to sell shareholders on the wisdom of the deal. Selling shares hardly will inspire confidence. Nor will the acquirer like such an action. That is why it tends not to happen after a deal is public.
ii. It could take months for the deal to get final approval. Some here have noted a concern over DOJ approval. Plus, of course, we need shareholder approval. These things take time. More time during which mgmt. will be constrained from selling.
iii. After the deal is approved, mgmt. still cannot sell shares until after an 8-K is made public. This non-selling period is required by law.
6. Other points:
a. Mgmt believed 34ish to be a reasonable bottom at the time. That is why employee stock options were repriced to 34 15/16 (i.e., close of trading on 10/17). Had mgmt foreseen a further decline (who could have foreseen Hong Kong), and had they had the time in light of the impending letter of intent, they would have waited longer.
b. Mgmt does not mind some decrease in share price. It makes the merger all the more attractive to shareholders. But even it has a limit. I suspect that limit was about 25ish.
c. I saw a statement, by Maverick, of his opinion that mgmt. will cap 4Q sales at 290MM and save the rest for backlog. Why do you think it wants to do that? I believe it wants to do that to cap the quarters sales. If analysts anticipate an upwards blowout, they will upgrade and the stock price will go up rapidly. That is something that mgmt does not want at this juncture. It makes the trx less compelling to shareholders, who get to approve the deal.
d. Sudden conservativism by mgmt is a further sign to me that a deal has been completed. There is no need now to pump the stock up. [An upside: If I am wrong, and there is no merger, I do like the new conservative, mature attitude. That presents an upside beyond that of a merger...i.e., the fundamental ain't bad anyway, so it should be a win-win investment decision regardless of what happens]
e. When is the announcement?
i. If CPQ is the buyer (a CPQ/COMS/ASND deal is feasible...all had identical insider trading patterns at the end of October), CPQ has to wait until 12/11 for shareholder approval of 2B extra shares. I don't know if CPQ would want to wait until 12/11ish for an announcement. It might not care about 12/11. If it does care, it might just announce at the beginning of 1998.
ii. If another entity is the buyer, then 12/11 is not an issue and the deal could be announced in mid-November. I would gather that the final details are in the works since the letter of intent was signed (if that happened) and this does take time. No announcement until more details are ironed out.
Heck, I'm probably totally wrong on this. But that is how I read the tea leaves.
Gary Korn
P.S. I believe the buy-out will be at 8 times sales, or about 48-50 per share.
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