INSIDERS BUYING CNCX> Good article
Flying Under the Insider Radar at
Concentric Network
By Bob Gabele
Special to TheStreet.com
10/27/99 3:54 PM ET
A major insider-buying move may have slipped under the radar screens of most
investors. Beginning back in July and continuing well into September, executives
and directors of Concentric Network (CNCX:Nasdaq), the network and Internet
service provider, began exercising a combination of options and warrants to
acquire 372,455 shares of the company's stock.
That's a lot of shares: more than 1% of the company's public float. But it's easy
to overlook, and here's why: Discussions of insider activity -- the kind you're likely
to encounter on TV or over the business newswires -- tend to focus on
open-market buys and sells and frequently overlook insider exercises of stock
options.
It's not that the information is unavailable: Data on insider exercises of stock
options and warrants exercises are filed on the same form as open-market
purchases and sales. But the data are cumbersome to extract and difficult to
manage, which is why most observers ignore option-related activity. But with the
explosion in stock-option compensation -- particularly in the technology, telecom
and Internet fields -- the key to gauging insider sentiment lies in how those
insiders take advantage of their options positions.
Which brings us to Concentric Network. Despite spending much of the past six
months retracing its climb to an all-time high, Wall Street analysts have begun
warming up to the company. Earlier this month, the company reported a
smaller-than-expected third-quarter loss, despite a surprisingly uninspired
contribution from the company's major customer, WebTV.
Fortunately, impressive gains in digital-subscriber-line services and Web-hosting
revenues made up some of the difference. But what really seems to have the
Street excited is the company's ability to attract and retain high-profile partners
and investors -- a list that includes such heavyweights as Williams
Communications (WCG:NYSE), SBC Communications (SBC:NYSE),
Teligent (TGNT:Nasdaq) and Microsoft (MSFT:Nasdaq).
What also impresses us is that Concentric Network insiders, many of whom are
seasoned telecom players, have established a pattern of exercising options on
stock-price dips. Leading the way, Director Franco Regis (also director of
business development and strategic planning for Telecom Italia (TI:NYSE ADR))
recently exercised warrants to acquire 312,142 shares in a transaction that
appears to have eluded most insider analysts. Chairman and CEO Henry Nothhaft
exercised options to acquire 24,813 shares, while James Isaacs, a vice president
of business development, picked up 10,416 shares. Other executives who
exercised options to acquire shares include CFO Michael Anthofer and a senior
vice president of sales, William Etheredge.
Two big positives here: First, the options exercised were a combination of
ordinary incentive stock options as well as nonqualified stock options. In our
experience, the exercise of stock options of any type is a positive, assuming, of
course, that the insiders retain all the shares acquired. In the case of nonqualified
options, tax consequences favor their exercise when the shares are trading at
their lows. This lends an extra significance to the timing of the Concentric
insiders' exercise, for, if nothing else, insiders have little incentive to exercise
nonqualified options ahead of share-price declines.
Equally impressive, two of the insiders now acquiring shares -- Chairman Nothhaft
and Vice President James Isaacs -- sold stock back in May at around 40.
Counterintuitive as it may at first appear, we like to see former sellers among
those acquiring stock. If nothing else, this helps rule out the notion that they
would blindly support their stock, regardless of external circumstances.
Particularly useful of course, are those whose past sales have proven timely.
This kind of signal is not guaranteed -- a previous column highlighting similar
activity at Cypress Semiconductor (CY:NYSE) proved prescient, whereas one
that focused on the same kind of circumstance at electronic trading provider
Investment Technology Group (ITG:NYSE) did not.
Still, the situation at Concentric Network looks compelling and certainly worth
digging into. After all, despite its still-struggling share price, the stock has some
pretty impressive supporters. It's certainly nice to see company insiders
prominent among them. After all, when was the last time you heard anything
about Internet insiders who were actually buying their companies' shares? |
