Insiders Selling at the Top?
Thursday August 10, 7:00 am Eastern Time
Morningstar.com
Xcelera: Selling at the Top?
By Pat Dorsey
As originally published, this article contained an error regarding the dates of the ownership figures in Xcelera's 20-F filing. These ownership figures are current as of July 14, 2000 -- not January 31, 2000, as reported in the original version of this article. We apologize for the error. A corrected version follows.
I have no doubt that if the tale ``The Emperor's New Clothes'' took place on Wall Street today, the child who spoke the obvious truth -- that the emperor had no clothes -- would most likely be inundated with electronic vitriol in his e-mail inbox.
About a week ago, my colleague George Nichols wrote an article about a certain Internet stock called Xcelera.com (AMEX: XLA - news), highlighting a few reasons why investors should cast a skeptical eye on the company's shares. I won't bore you with the gory details, but the upshot of the piece was that (a) although the company is billed as an Internet investment firm, all of its fiscal 2000 net income came from selling discontinued real-estate operations, (b) since Xcelera is located in Grand Cayman, British West Indies, it only reports financial results once per year with a six-month delay, and (c) insiders have apparently been selling shares.
In addition to the predictable flood of obscenity-laden e-mail from the message board crowd (over 100 and counting, so far), the article also generated a response from Xcelera's public relations firm. In an e-mail, the PR firm stated that insiders' ownership stake had actually risen between 1999 and 2000.
While it's true that VBI, a corporate entity closely tied to company insiders, did increase its overall net stake in Xcelera between July 1, 1999, and July 14, 2000, VBI also sold shares on more than three dozen occasions between February 22, 2000 and June 22, 2000.
This information comes from a type of document called a Form 144, which insiders must file when they intend to sell shares. Although a Form 144 only indicates an intention to sell stock, and doesn't indicate if or when the actual sale will occur or has occurred, it also contains an oft-overlooked portion that requires the stockholder to list all previous sales made within the past three months.
According to Form 144s filed on July 24, 2000 and April 17, 2000, VBI sold around 3 million split-adjusted shares between February 22, 2000 and June 22, 2000 in about 40 different transactions. VBI owns a majority voting interest in Xcelera, and VBI's sole director and executive officer, Alexander M. Vik, is also the chairman and CEO of Xcelera.
Although these sales only seem to represent a few percent of VBI's total Xcelera holdings, a couple of interesting observations emerge from the selling pattern. First, VBI was selling Xcelera stock just after the March 22 announcement that Web-hosting giant Exodus (Nasdaq: EXDS - news) was investing in Xcelera's highly touted Mirror Image unit and had forged a business partnership with Mirror Image.
Lucky for VBI, too, since March 22 turned out to be the stock's all- time high. (VBI sold 660,00 split-adjusted shares just on that day and the day after.) In some ways, it's probably even more telling that VBI kept selling shares as Xcelera's stock price continued to decline from the post-Exodus announcement high of nearly $110 all the way down to below $40 at the end of June.
Of course, it's entirely possible that VBI was simply lightening up on its Xcelera exposure so that it could diversify its interests elsewhere, and that the sales imply nothing about VBI's--and, presumably, Alexander Vik's--view of their company's stock price. Personally, I don't think that's probable, but I suppose it's possible.
In any case, draw whatever conclusions you may from the selling pattern. The fact remains, however, that insiders sold, and that these sales occurred very frequently over a four-month period averaging at least a couple per week. For all I know, Xcelera might have the greatest technology in Mirror Image since the integrated circuit--but I don't think insiders would have started bailing unless they had thought the company's share price was at least temporarily out of whack with its prospects.
Etc.
Despite what Microsoft (Nasdaq: MSFT - news) said on its recent earnings call, it looks like the company is going to start repurchasing shares again. You read it here first, folks--almost two weeks ago.
Pat Dorsey can be reached at patrick_dorsey@morningstar.com. |
