NNEW YORK, Aug. 3, 1999 1:00 p.m. ET (JagNotes.com)
AOL Calls Recent Wave of Insider
Dumping of 4 Million Shares
'Routine,' But Insider Service Says It
Ain't So
t first glance, the recent rash of selling of America
Online (AOL) shares by its top executives and other
insiders doesn't seem like any big deal.
The company characterizes the selling—four million shares by
14 insiders—as "routine."
"Our executives routinely sell shares during open windows as
part of their personal financial planning," an AOL spokesman
said in a recent statement.
On the surface, that seems perfectly reasonable. After all, who's
to blame folks for wanting to salt away some lofty profits, given
the huge run-up in the stock from its 52-week low of 17 1/4, the
recent erratic behavior of the Internet stocks, and increasing
nervousness in the marketplace.
However, the trackers of insider activity at Thomson Financial
Co., view the extent of the selling in the kingpin of online
services as anything but routine.
Thomson, which, by the way, has a pretty good financial Web
site (www.thomsoninvest.net), contends that AOL's spin on the
insider sales was "misleading"—causing a gap between the
perception provided by the company and the reality of the true
holdings sold off by the insiders.
In particular, Thomson, in an analysis by its weekly publication,
Insider Research Services, zeroed in on the selling by three
insiders: Chairman and CEO Stephen Case, President Robert
Pittman and Senior VP of Corporate Development Miles
Gilburne.
In total, the trio unloaded 3,250,000 shares, with Case selling 1.5
million, Pittman, one million, and Gilburne disposing of the rest.
According to AOL's calculations—and this is what IRS contends
is misleading—Case sold about 9% of his holdings, Pittman,
13%, and Gilburne 25%.
Based on its calculations, however, the Thomson publication
claims these numbers are understated by pretty hefty margins.
How did it come to such a conclusion?
Because of the way AOL interprets the stock options activity.
AOL, in stating the holdings held by these three men after their
sales, assumed the conversion of all options held by its insiders,
according to IRS.
The insider service says it has no problem with AOL including
the insider options in its calculations of the holdings, as long as it
doesn't include options that have not been vested (and cannot be
exercised).
Unvested options, it points out, may not be exercisable for years,
and an insider cannot sell what is not actionable. This is why the
Securities and Exchange Commission requires that
calculations of insider holdings in proxy statements count only
common stock and exercisable holdings (that is, exercisable
within 60 days).
AOL, though, included in its calculations holdings that were not
actionable. As a result, IRS points out, the company's
calculations of its insider holdings reductions were severely
understated.
As such, IRS says, Pittman reduced his actionable position
(common stock plus exercisable options) by 30%, while Gilburne
cut his holdings by 55%. Case's actual reduction of 15% was
less severe, IRS notes, but much greater than the announced
9%.
"These holdings reductions are much larger than we've been
accustomed to at AOL over the years," observes IRS.
The insider service also raises questions about the timing of the
insider sales. Given the fact that the shares sold were trading at a
greater than one-third discount from their highs earlier in the
year (175 1/2), the insiders might have waited for the next
window to take advantage of any potential rebound in their
shares, IRS says.
That is, it concludes, if they felt a rebound was in order.
AOL officials were not immediately available for comment on
the Thomson analysis.
Meanwhile, nervous investors, some apparently worried by the
wave of insider selling, have been unloading the stock in recent
sessions.
The stock, down four days in a row, and the most active issue
on the Big Board today on a volume of more than 27 million
shares, is currently trading at 87 3/8, down 5 1/2. This follows a
decline of 4 1/4 yesterday.
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