MSTR - WSJ article -- sounds like a Jacobs' redux to try to squeeze MSTR shorts.
April 20, 2001
MicroStrategy Skyrockets
In Bid to Stop Short Sellers
By AARON ELSTEIN and NICOLE HARRIS
Staff Reporters of THE WALL STREET JOURNAL
MicroStrategy Inc., the software maker that has struggled with an accounting scandal, earnings shortfall and other turmoil, took a highly unusual step Thursday that lifted its depressed shares by 76%.
In a letter to shareholders released before the market had opened, MicroStrategy Chairman and Chief Executive Michael J. Saylor urged investors to take steps to "combat short selling" of the company's shares. Mr. Saylor wrote that while MicroStrategy's stock has been hurt by generally dour sentiments surrounding technology stocks, the company's current share price, down 98% from its all-time high of $333 in March 2000, can also be attributed to "heavy selling pressure from short selling."
MicroStrategy, based in Vienna, Va., makes software used to uncover operational trends based on a company's corporate databases. The company has struggled since it said it would restate financial results for 1997, 1998 and 1999. On March 20, 2000, the day the company first announced its accounting woes, MicroStrategy shares plunged 62%, shaving off about $11 billion of market value.
Since then, the company has resolved shareholder suits and a Securities and Exchange Commission investigation of its accounting practices, agreeing to pay fines and court settlements valued at about $140 million. It recently unveiled a restructuring plan focused on its core "business intelligence'' software.
Amid these troubles, the company has been targeted by short sellers. These investors benefit from a falling stock price by selling borrowed stock that they hope to replace later with cheaper shares.
James Pickrel, an analyst at J.P. Morgan H&Q in San Francisco, said Mr. Saylor's letter was highly unusual -- and apparently effective. "I haven't seen anything like it before," he said.
Investors seemed to concluded that it will now be more difficult to short shares of MicroStrategy. At 4 p.m. Thursday, MicroStrategy's stock traded up $2.27, or 76%, to $5.24 on the Nasdaq Stock Market.
MicroStrategy Treasurer Bill Chatterton said the company released the letter because short-interest levels in the company had reached nearly 5.8 million shares in March, or more than 20% of the company's publicly available stock. He said he received several calls Thursday from investors saying they would heed Mr. Saylor's request.
"We determined it was necessary to make a statement about what we thought has been going on in our stock," Mr. Chatterton said. "We're pleased with the initial response from our investors."
In Mr. Saylor's letter, the CEO instructed shareholders to notify their brokers that they want their MicroStrategy shares registered in their own names, rather than with their brokers. He acknowledged that shareholders might have to pay some expenses because of the paperwork involved.
"We think this is a small price to pay for relieving the heavy short-selling pressure on our stock," said Mr. Saylor, who is MicroStrategy's largest stockholder with a 43.4% stake.
Mr. Saylor's letter also updated investors about the company's restructuring plans and the refinancing of $125 million in convertible preferred stock. He added that a federal court had approved a settlement with shareholders who sued after the company said last year it would restate earnings for the prior two years. But the letter quickly turned into a plea for help against short sellers of MicroStrategy stock.
Corporate executives ordinarily are loath to comment on their company's stock price. It is also unusual for top managers at widely followed companies to blame short-sellers for dragging down their stock's price. But on Internet-message boards, fans of penny-stocks often urge posters to "call in your certs" -- meaning call their brokers so they can get their stock certificates so that brokers can't lend the shares to short sellers. Such calls to action, however, are rarely effective in halting a falling penny stock.
MicroStrategy's move recalls steps taken by Conseco Inc. shareholder Irwin Jacobs, a Minneapolis financier, in July 2000. Mr. Jacobs, who at the time held about 5% of Conseco, took out a sizable advertisement in The Wall Street Journal, published by Dow Jones & Co., which also publishes WSJ.com. In the ad, Mr. Jacobs blamed short-sellers for depressing the stock price and asked holders to insist their brokers not loan their Conseco shares to short sellers.
Analysts said Mr. Saylor's letter was a creative step but noted that executives should concentrate on the company's performance. "Short selling is one of the reasons the stock has been depressed, but the company needs to focus on what they control -- executing," said David Hilal, an analyst with Friedman, Billings, Ramsey in Arlington, Va.
Earlier this month, the company warned that first-quarter earnings would fall short of expectations and cut 600 jobs, or about one-third of its work force. In December 2000, the company said it would trim its payroll by 10%.
Write to Aaron Elstein at aaron.elstein@wsj.com or to nichole.harris@wsj.com. |
