OPEN LETTER TO ANTEC INVESTMENT RELATIONS:
3/28/2000
James A. Bauer
Antec Corporation
Investor Relations
1 North Franklin Street
Chicago, IL 60606
Dear Mr. Bauer,
In our telephone conversation this morning I said that what especially bothered me was that the analysts and investors who were contacted by Mr. Stanzione on or about March 6 and were told to reduce their Q1: 2000 revenue targets by about $13 million from their $250-255 million forecasts appear to have reacted by selling without even issuing revised reports. You then indicated to me that I was wrong and that I could have found their revisions on First Call and AOL.
In particular you stated that Warburg Dillon Read issued a revised report that was available through First Call.
I have purchased an online subscription to First Call's individual investor service for $19.95/month from its corporate parent Thompson in order to see what the Warburg analyst said. Unfortunately, I found that Warburg Dillon Reed's reports are not available through this service.
thomsoninvest.net
What was available was neither timely nor comprehensive and did not include any revised guidance during the month of March.
Next I telephoned First Call to find out about their institutional service. In order to access Warburg Dillon Reed's 3/10/2000 one page note on Antec by analyst Anton Wallman entitled "Antec Lowering Estimates, Raising Target: Rocky Road Ahead", I would have had to be a subscriber to First Call Notes, at a cost of $1,435 per month and also have a trading account with Warburg Dillon Reed, since Warburg is one of about 20 firms that deny access to research reports and notes to nonclients.
Hence there is no way that this revised revenue guidance would be available to me or to any non-institutional client. So it cannot be construed as a "public release".
Next I checked AOL. AOL offered me just one brokerage research report on Antec during the month of March -- a March 10 report from Wachovia Securities at a cost of $10. Bingo! "We are reducing our Q1: 2000 revenue estimates for ANTEC by $12 million, from $250 million to $238 million and reducing our Q1: 2000 EPS estimates by $.01 to $0.20..."
Does a research report that I can purchase online for $10 provided I am aware of its existence constitute a public release? I think not. I think a public release is accomplished through a press release. But even if these March 10 releases were construed to be public releases, they were certainly not timely.
Barrons (3/27/2000) said: "Three weeks ago, [Antec CEO Stanzione] was on the phone with analysts and investors. The message this time: First-quarter earnings would come in on target, up 46% to 19 cents per share, from 13 cents per share reported in 1999's first quarter. But revenues would be $13 million shy."
"Three weeks ago" suggests that the date of these calls was 3/6/2000. It would appear that the investors and analysts Mr. Stanzione called placed their trades well ahead of their published estimate revisions, for the majority of the damage to Antec's market value was done between March 6 and March 10.
ANTEC Nasdaq: ANTC
DATE CLOSE OPEN HIGH LOW VOLUME
3/10/2000 46 1/2 54 11/16 55 1/4 45 1,905,700
3/09/2000 54 7/16 53 57 1/2 52 15/16 510,200
3/08/2000 53 1/4 57 57 1/2 51 5/8 502,700
3/07/2000 57 1/2 59 1/4 60 55 5/8 502,800
3/06/2000 59 5/16 59 7/8 61 1/4 58 1/4 506,800
I do not know whether a quarterly revenue revision from $250 million to $235 million is material or not, but if I were you I would rather err on the cautious side. Most courts agree that information is material if it is likely to impact stock prices. Based on the price action in Antec after March 6, I would have to assume that the news certainly was material as Antec lost about 35% of its value over the next ten trading sessions in a rising stock market as indicated by the Dow Jones Industrial Average.
Why, Jim, should I have to play the ugly little game of calling you up on the phone and telling you that I am looking for $300 million in revenues next quarter (based on my mindless linear extrapolation of last quarter's trend) in the hope that you will give me your best revenue number for next quarter? Such behavior is unethical and illegal in my opinion.
Insider trading laws are not that complicated. They are based on the simple principle of disclosure and equal access to material information. It is material if it can impact the price of the stock. Tippers and tipees both share liability as co-conspirators when material inside information is traded upon before it is publicly disclosed. Your conduct in issuing revenue guidance without a public release raises the likelihood of insider trading to a near certainty.
As I suggested to you over the phone today, I believe that Antec's policy of allowing analysts to break down the armor of silence ahead of public earnings releases is reprehensible, immoral, and probably illegal. If you want to give revenue guidance, or if you feel you must do so, the place to do it is not in a one-to-one telephone call but a public press release. Period.
I recognize that you do not intend to selectively disclose inside information, but that you simply want to issue periodic guidance so that analysts expectations conform more closely to reality. We all like to avoid unpleasant surprises. But if you choose to make such disclosures, you have a duty to make them publicly available to all investors at the same time. Through press releases and the technology of the internet, you can easily do so. You might also hold a conference call open to all investors, which you may allow investors to listen to live and in replay mode. But it is not permissible to give revenue guidance in phone calls to certain analysts or investors, because that is not tantamount to a public release. It is illegal.
In our conversation I asked how you would handle the situation differently if it happened again. You indicated to me that you would probably handle it the same way. If this is the case, then you are not interested in creating a level playing field for Antec investors. That is why I can no longer trust Antec management.
Sincerely,
Sam Citron
cc: Robert J. Stanzione, CEO (by first class mail)
cc: Silicon Investor Subject 8145 |
