Hi thread, an article from TheStreet.com may explain why
Cendant Insiders Shuffle Shares
By Bob Gabele
Special to TheStreet.com
2/24/00 10:09 AM ET
Admittedly, my perspective is skewed, but when I look back on the great
Cendant (CD:NYSE - news - boards) debacle of 1998, what I remember most
is how very nearly Cendant insiders caught the top. Given the saga that
unfolded (indeed, continues to unfold), the 4.7 million shares sold by Cendant
officers and directors between Feb. 4 and April 7, 1998 (the last, a mere eight
days before the stock plunged some 50%) have been largely forgotten.
For nearly two years, as Cendant has struggled mightily to re-establish its
credibility, company insiders have kept a low profile -- by Cendant standards
at least. In fact, there were periods, most notably in late autumn of 1998,
when insiders were net accumulators of Cendant shares. All that has
changed, however. From Feb. 4 through Feb. 8, seven Cendant insiders filed
Form 144 intentions to sell a total of just under 4.7 million shares at indicated
prices ranging from $19.88 to $22.25 per share.
Just like old times, Chairman, President and CEO Henry Silverman led the
way, disposing of roughly 1.8 million shares -- though to be fair (and as
Cendant's Feb. 4 news release makes abundantly clear), Silverman did
exercise options to acquire 3 million shares. Among the remaining sellers,
Vice Chairman and General Counsel James Buckman filed his intention to
sell 418,152 shares, while Vice Chairman Stephen Holmes and Director John
Snodgrass accounted for 341,241 shares and 1,341,271 shares, respectively.
Notably, all were sellers in the months preceding the 1998 collapse.
Cendant's news release makes no mention of the stock sales by these
directors. A Cendant spokesman did confirm the sales, however,
characterizing Silverman's transaction as a cashless exercise, whereby he
actually increased his common holdings from 300,000 shares to 1.5 million
shares. According to Cendant, the 1.8 million shares were sold to cover the
cost of exercising the options and to satisfy charitable obligations.
As for the remaining directors and officers, the company spokesman points
out that stock options are integral to Cendant executives' compensation, and
that the activity was "motivated by personal financial planning reasons." He
refused to comment on the timing of the sales.
Unfortunately, more than anything, it's the timing that is of interest -- if for no
other reason than because the activity marks the first significant round of
sales since the stock's meltdown in April 1998.
Much more important, the sales occurred not only after Cendant popped from
the mid-teens to its 52-week high of nearly 27 on news that Liberty Media
(LMG.A:NYSE - news - boards) would invest $400 million for a 2.5% stake in
the company, but even as the stock began to give back those gains. As an
added twist, Liberty's Chairman and CEO John C. Malone committed to
purchase 1 million shares even as Cendant directors were making known their
intentions to sell.
To be sure, the luster of the Liberty investment may yet boost Cendant's
struggling shares. So too may a recent spate of press features, including an
almost flattering Business Week cover story, which could hint at a softening
regard both for Cendant and for front man Silverman. Investors should have
been cheered in December when the company agreed to pay its shareholders
$2.83 billion to settle numerous allegations of accounting irregularities
stemming from the 1998 misstep.
Many investors remain wary, however, and perhaps they should. Silverman
has made known his regret that he accepted the decision to reprice executive
options downward in 1998, but what's done is done. What's more, Silverman
has already announced that he will be exercising additional options (not
repriced) due to expire in 2001. It's less clear what he plans to do with the
shares. The recent insider sales at depressed prices are hardly encouraging.
More than anything, I guess, I'm troubled by the corporate release (and
ensuing press) touting Silverman's 1.2 million-share "acquisition." Don't get
me wrong. I don't dispute the facts -- much less that Silverman holds an
extremely healthy Cendant stake. But why all the fanfare? I mean, when an
insider exercises 3 million options and dumps more than half of the shares
acquired, headlines like "Cendant Chairman Raises Stake" just don't ring
true. |
