Irwin jacobs update: 10/16/2000
irwinljacobs.com
Once again the past two weeks have been difficult for all Conseco shareholders watching the price of our shares drop in value. I continue to receive many calls and e-mails asking me to try and explain the current stock price in light of all the clutter of information out there on Conseco. Although I believe the short sellers continue to circulate relentlessly many negative rumors and stories, I also believe there are a couple of other reasons that have negatively impacted Conseco’s stock price during the past two weeks even more so.
October is the fiscal year-end for several mutual funds that have owned Conseco stock. During this month several mutual funds do their October year-end tax planning by selling stocks with losses to offset gains that they have taken during the past year. I have personally spoken with several fund managers that have in fact told me they were aware of specific mutual fund managers who sold their Conseco shares over the past two weeks for tax planning purposes.
Additionally, there are also some funds that, in accordance with their fund bylaws, cannot own a publicly traded stock that doesn’t pay a dividend. I have heard estimates of approximately 6 million shares of Conseco stock that were owned by those funds who had to sell their Conseco shares in order to comply with this dividend policy. I believe the total number of shares, including those funds selling for tax reasons and the funds that had to sell their Conseco shares because of the dividend deletion, amounted to somewhere in the area of 15 to 17 million shares. This type of selling pressure, I believe, is responsible for part, if not all, of the recent drop in Conseco’s share. This is my personal estimate, calculated by researching those funds that have publicly filed their change in Conseco stockholdings and by speaking with several fund managers who have also followed the situation and continue to hold the Conseco stock (many of which have increased their holdings in Conseco by several million shares over the past two weeks.)
Given these two sources of selling pressure, as well as the recent overall market decline, I am not surprised Conseco has temporarily slipped to this price level. However, I will also point out, that many savvy investors who routinely monitor the “October sell-off” phenomenon also take this as an opportunity to buy stocks like Conseco at these artificially depressed prices, only to profit as the stock returns to its normal trading value later in the year. I firmly believe this will be the case with Conseco.
From an operations standpoint, the simple most important thing that Gary Wendt and his management team can do to increase Conseco’s share price is to profitably manage Conseco’s business. I believe Gary is working seven days a week and will ultimately reward the shareholders of Conseco by making Conseco a greater and more profitable company than any time in its past. All of us must realize that the ongoing challenges for Gary and his organization will continue to be enormous, but those challenges are really the opportunities for the future of Conseco and its shareholders. I believe Gary’s highest priority is to get Conseco’s credit rating back to investment grade. Obviously, I am not in a position to predict when that will happen, but one thing I am sure of is that no one will get it done sooner than Gary Wendt. I believe the worst is behind us and continue to believe the future for the Conseco shareholders is the best it has been in years. Let’s not forget that the banks that hold Conseco’s debt have given their blessings and support to Gary in negotiating a new debt restructuring package that gives Conseco the ability not only to manage its business, but also to prosper and grow the company in the years ahead.
Although the short selling contingency wants you to believe there is no value in Conseco for its shareholders, I strongly believe in the contrary. I think now that the bank group has given the necessary time and reassurance to Conseco and Gary to sell those non-core assets to reduce its debt and manage their core businesses to maximize profitability, it won’t be long for the marketplace to respond to increasing Conseco share prices. In my final analysis, after reviewing Conseco’s most recent 8K filing on September 27, 2000, that listed Conseco’s non-core business assets available for sale as well as all other core business companies and assets around which Gary plans to build Conseco, I believe there is substantial upside and opportunity for Conseco employees and shareholders now and in the future. Ultimately, I believe our patience will be handsomely rewarded. |
