*** Companies Give Big Investors the Inside Scoop Part 1 of 3 ***
New York, Dec. 14 (Bloomberg) -- As Western Digital Corp.'s stock surged 37 percent on December 1, only a select group of people at an Arizona resort knew why the disk-drive maker was having its biggest one-day gain ever.
Most of the company's 3,700 shareholders couldn't explain the sudden spurt that added $427 million to Western Digital's market value in a few hours. They hadn't been invited to the Phoenician in Scottsdale, where investment bank Credit Suisse First Boston was treating a private party to warm lobster salad, seared Hudson Valley foie gras, fillet of turbot and roasted rack of Colorado lamb in between a series of closed-door meetings with top officials from more than 140 companies.
The Credit Suisse First Boston conference offered plenty of opportunities for the firm's clients to trade before the rest of the world learned what executives at the meeting were saying.
At one of these sessions, Charles Haggerty, Western Digital's chief executive, said business was getting much better. Some of his listeners, in a room with beige, silk- covered walls, reached for their cell phones and placed orders to buy the stock. Before the day was over, Western Digital had jumped 4 13/16 to 17 7/8.
Such briefings -- attended by invitation only -- are routine. During the past several months, executives at Dell Computer Corp., Barnes & Noble Inc., Northern Telecom Ltd. and Tellabs Inc. have provided enough insight in these private situations to prompt unforeseen price fluctuations, adding or subtracting billions of dollars in market capitalization in less than a day.
Big Incentives
''It sounds like insider trading to me,'' said Barbara Roper, director of investor protection for the Consumer Federation of America, a non-profit advocate for about 50 million people. ''The big players are getting information and getting a chance to trade on that information before it gets out to the rest of the market.''
And there are big incentives to keep it that way. Securities firms are selling ''access,'' said Michael Holland, who spent much of his 30 years in the investment business working at the Wall Street firms Credit Suisse First Boston and Salomon Brothers before forming his own money management firm. By arranging exclusive meetings between their preferred customers and chief executives, securities firms have a better chance of receiving more buy and sell orders, and the commission dollars that go with them.
''They're providing us with information,'' said Jon Burnham, chairman of Burnham Asset Management Corp., who has attended hundreds of these meetings in his 40 years as a professional investor. ''That's the point of these things for brokerages, to get information out and then to get commission dollars back for it, and they do it in spades.''
For their part, chief executives are only too willing to give the firms' analysts andselected investors the first word on market-moving news. Such intimacy creates the widest following for their company's stock and helps them put the best light on their results.
Same Information
Western Digital's Haggerty didn't engage in selective disclosure at the Credit Suisse First Boston conference, said Robert Blair, vice president of investor relations. ''Anyone who's called me for the past week has gotten the same information,'' Blair said, soon after Haggerty spoke.
The difference is no one who called Blair was in the same room -- which could seat only 160 people -- where Haggerty told investors the company had whittled its inventory of disk drives, boosted market share and planned to ship products incorporating International Business Machines Corp. technology earlier than expected. Haggerty declined to comment on his presentation at the Phoenician.
Other executives, representing companies from BMC Software Inc. to Intuit Inc., also made time in their busy schedules to spend a day at the Phoenician, playing the 27-hole golf course, dining on executive chef George Mahaffey's four-star cuisine and laughing at jokes from Dana Carvey, the comedian specially hired for the conference.
Credit Suisse First Boston, and dozens of other firms, can easily spend $4 million on events like this one, which included more than 500 guests, according to investment bankers familiar with the expenses.
No Individuals Allowed
Many of these conferences are annual, including NationsBanc Montgomery Securities' six-day meeting on growth stocks at the Ritz in San Francisco every September, and Hambrecht & Quist Group's week-long computer-industry gathering at the Westin St. Francis Hotel in the same city. The H&Q meeting this year drew executives from 320 companies.
While these may be the most overt examples of selective disclosure, the practice is widespread on a subtle level every day.
In a NationalInvestor Relations Institute survey of 227 companies, 99 percent said they invite professional money managers to participate in regular telephone conference calls. Only 29 percent welcome individual shareholders and just 14 percent allow news reporters on those calls, according to the institute, an association of 3,600 investor relations officers.
On July 21, Tom Meredith, Dell Computer's chief financial officer, told a select group of investors on a conference call that personal computer prices were still falling, even though analysts had expected them to recover. Dell, the best-performing stock in the Standard & Poor's 500 Index in 1996 and 1997, declined 4.4 percent in a couple hours, carving $3.3 billion out of its market value as big investors sold shares. Individuals who bought Dell shares that day did so unaware of Meredith's remarks.
''We do not engage in selective disclosure on our conference calls or in any other distribution of material corporate information,'' said T.R. Reid, a spokesman for Dell in Round Rock, Texas. The July 21 call contained no new, important information that should have been disclosed because the company had said in May that PC prices were falling, he said. |
