What does it mean when a CEO sells off his stock? [Archive]

View Full Version : What does it mean when a CEO sells off his stock?

Sdiver

03-07-2010, 23:35

VA Pete

03-08-2010, 07:14

You are saying AMR, but you linked to EMS. I'm confused?

The company is clearly already public if you are looking at its stock sales.

Typically, selling the company would be at a premium, meaning the price would go up afterwards, and you'd want to hold your stock until then.

Often, to avoid the appearance of making these types of decisions based on the prospects of the company, officers will set up plans whereby they automatically sell stock or exercise options at timed intervals (if you want to really shake your head, check out the insider transaction list for Larry Ellison sometime; I used to work for ORCL). If you look at http://finance.yahoo.com/q/it?s=EMS , a bunch of those are automatic.

Beyond that, it has been shown that insider sales correlate with underperformance far more than insider buys correlate with outperformance, although if you ask me for a cite on this I am quite sure I will not be able to find it.

jatx

03-08-2010, 10:24

All it means is that his comp plan resulted in an aggregation of shares that left him under-diversified.

nmap

03-08-2010, 11:53

It's an interesting question. The best source is EDGAR, through the SEC.

LINK (http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000006201)

The filing you want to look at is form 4. You'll notice a lot of sales in 5,000 share lots - most likely these are as JATX suggests.

Insider selling can, in some instances, represent a cautionary note. More can be seen HERE (http://seekingalpha.com/article/191177-insider-selling-hits-new-2010-high)

A long-term chart doesn't look too bad. LINK (http://stockcharts.com/h-sc/ui?s=AMR&p=W&b=5&g=0&id=p05830871313&a=193510525)

I guess I would look on it as a cautionary note, and would keep an eye out for other events.

jatx

03-08-2010, 15:24

I did an econometric study of this years ago at McKinsey. The key is being able to estimate levels of individual wealth and invested assets for executives, something that was somewhat tedious to do. However, with that information, it was simple to use the Sharpe ratio to predict which executives would sell off holdings of their own companies for no reason other than diversification. After these things were taken into account, their selling behavior had almost no information content (except in cases of criminal trading activity).

Sdiver

03-08-2010, 15:53

Thanks all for your responses. Some really good stuff here to go over.

Just to clear things up, I do work for AMR (American Medical Response) but our "parent" company is ESMC (Emergency Services Medical Corp) . They are listed on the NYSE as "EMS".

http://www.emsc.net/

There is an "AMR" corp listed on the NYSE, but that is not us. Very confusing, I know.

I'll dig into some of these links that have been posted and continue doing my "homework".

Thanks Again.

Edit to add:

One of the reasons why we're looking into this is, there have been some "weird" goings on as of late. We didn't get raises last year, and this year they have been put on hold until the end of July, (if they come at all, as we were told).

We also had Furlough days this past December, and supply problems, as in, we're just not getting them.

This after the CEO, at our Holiday party this past Dec., said we had "One of the best years ever.", and the EMSC stock has nearly doubled in the past 2 years. If things are going so well, why would the CEO be selling off over 456K of his stock since November?

The Reaper

03-08-2010, 15:55

6.8SPC_DUMP

03-08-2010, 17:01

I agree with jatx.

If basing Mr. Sanger's insider sales as a clue to the "weird goings on"- you may want to consider that while did sell 459,000 shares, at a price range of $49.91- $53.81, during the periods between 11/6/09 - 3/3/10...

He also sold 604,400 shares, between 4/6/09 - 6/25/09, at a price range of $31.28- $36.04... Link (http://www.gurufocus.com/InsiderBuy.php?insider=Sanger+William+A&sharemin=100#double)

Just my lubed up .0000002

T-Rock

03-09-2010, 04:33

Jeffrey Barbakow, the CEO of THC cashed in $111 million worth of Tenet stock options prior to leaving ...
http://www.thestreet.com/p/pf/stocks/melissadavid/10168484.html

The stock collapsed in 2002 - check out the 10yr trend in the link below..
http://quote.morningstar.com/Stock/s.aspx?t=THC&culture=en-US&region=USA&r=974750&byrefresh=yes

What's in your wallet :D

Warrior-Mentor

03-09-2010, 11:15

Gents,

Looking for different opinions from the members here.

I've been working on a HUGE project as of late at work, (will fill you all in when the results are in), and one thing I noticed the other day, it seems the CEO for AMR (of which I work for) has been selling off his stock since the begining of November.

Here is the link to see how much he has sold off since then ....

http://www.gurufocus.com/news.php?id=86479

His last transaction was on 3/2/10 selling off 117,300 shares at $53.26 a share for a total of over 6.2 million dollars.

Just wondering if anyone here with any type of business background could "read between the lines", in why he would be doing this.

We're speculating that AMR could be either going "public" this summer, or he his looking to sell the company.

Thanks

It's not likely that it's going public. Guys tend to want to buy MORE stock prior to going public...so they can gain with [hoped for] gain in stock price with the public offering.

He either needs the cash, is trying to stabilize his protfolio or isn't hopeful about the future of the company...none of which is good for you as an employee...

Look at what happened with other companies that have gone bankrupt in the past...owners sold off their stock while telling their employees to buy more...

ENRON ring a bell?

Fur on the back of my neck would be standing up if I were you...something's going on...and it's not good...

My .02

nmap

03-09-2010, 12:33

With the revised information...take a look and see what you think.

It's certainly been strong. The analysts love it. Earnings have been great. Odd, though, that the insiders have been selling over the last 12 months.

All of this is in the attached PDF.

Personally, I think it suggests the stock is fully valued with little upside potential. But the professional analysts, as you can see, think it should go considerably higher.

x SF med

03-09-2010, 15:07

Many corporate executives are limited in the total % of voting stock they can hold at any one time - this compounded by the execisable option % being counted against stock under control (exec is due to exercise expiring options that will put him over the stipulated contolling %). Check his exercises and the stock portion of his performance bonus. I'd be willing to venture the guess that prior to April 15 of each year he holds exactly the stipulated control % of voting stock he's allowed, without haveing forgone any exercise of options at lower prices than market par at the time of exercise.

so... the guy is selling high and buying low without giving up the chance to buy more stock, also, not coming under legal or SEC scrutiny for going over the amount of traded voting shares stipulated in his contract.

check out a few more companies - you'll se ethat bonuses are generally distributed in Calendar Q1 so that taxable distribution hits early in the year - allowing time for stock smoothing in the company management. IOW- they get their options exercised in Q1, sell off at current par, then repurchase at a lower par - making the same money twice on the overlap - legal, and actually lhas to happen from a legal perspective of the contracts signed.

Roguish Lawyer

03-09-2010, 20:47

When insiders sell, it may indicate their view that the stock price has peaked. But they often sell for other reasons, like when they need money or want to diversify their investments.

Sdiver

03-09-2010, 22:26

It's not likely that it's going public. Guys tend to want to buy MORE stock prior to going public...so they can gain with [hoped for] gain in stock price with the public offering.

He either needs the cash, is trying to stabilize his portfolio or isn't hopeful about the future of the company...none of which is good for you as an employee...

Look at what happened with other companies that have gone bankrupt in the past...owners sold off their stock while telling their employees to buy more...

ENRON ring a bell?

Fur on the back of my neck would be standing up if I were you...something's going on...and it's not good...

My .02

WM,

Thanks for the great input.

ENRON was the first thing I thought about, when I first saw this.

Trust me, the fur on my neck, spidey senses are tingling, and I'm feeling a GREAT disturbance in the Force, with all this. Just going to have to keep watching on this one......or maybe call one of the local news stations and have them "dig" into this, seeing that our corporate HQ is in Denver.

With the revised information...take a look and see what you think.

It's certainly been strong. The analysts love it. Earnings have been great. Odd, though, that the insiders have been selling over the last 12 months.

All of this is in the attached PDF.

Personally, I think it suggests the stock is fully valued with little upside potential. But the professional analysts, as you can see, think it should go considerably higher.

Thanks for that GREAT pdf. I'll most definitely pass it along.

alright4u

03-09-2010, 23:25

When insiders sell, it may indicate their view that the stock price has peaked. But they often sell for other reasons, like when they need money or want to diversify their investments.

Yes. they sell for many reasons. When I was with a major brokerage we watched this. Some CEO's were retiring and did not trust their replacement. They sold all their stock. Some diversify. Some know the company is tanking.

My bet is he like most know what Obama Care will do to the company plus most healtcare and insurers.. I'd be selling most healthcare related stocks now. too. Only if social medicine fails to pass would I buy back in.

6.8SPC_DUMP

03-09-2010, 23:33

While there’s NO indication that your companies’ practices involve fraud and malpractice (such as the re-branded and twice disgraced (THC) T-Rock mentioned) or is anywhere near as leveraged as Enron (via $3 Billion US tax dollars and another $4 billion foreign) as WM brought up – but there are valid parallels between them found in EMS’s Form 10-K (2/19/10) (http://www.faqs.org/sec-filings/100219/Emergency-Medical-Services-LP_10-K/#du76901_item_4._submission_of___du702404) that are cause for some concern for their wise warnings.

On February 18, 2010, Amendment No. 3 to the Investor Equityholders' Agreement, or the Investor Equityholders' Agreement, dated February 10, 2005, among EMS LP, Onex Partners, LP and the employee equityholders signatory thereto, became effective. The Investor Equityholders' Agreement previously restricted certain employees from selling their holdings of class A common stock of EMSC, or options exercisable therefor, predating EMSC's initial public offering in December 2005 in an amount exceeding the greater of the percentage of their original investment sold by the Onex-affiliated investors in our Company or 50% of such individuals' original holdings. Amendment No. 3 provides that the employee equityholders signatory to the agreement will be obligated to maintain aggregate holdings of stock and options received prior to EMSC's initial public offering in an amount equal to, or greater than, the aggregate percentage ownership of the Onex entities in EMSC.

It might be related to:
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2009, we had $451.0 million of outstanding debt, excluding capital leases, of which $199.8 million was variable rate debt under our senior secured credit facility and the balance was fixed rate debt, including the $250 million aggregate principal amount of our senior subordinated notes.
(Subordinated notes are securitization of debt like asset-backed securities or collateralized debt obligations)

All amounts borrowed under our senior secured credit facility are collateralized by, among other things:

substantially all present and future shares of the capital stock of AMR HoldCo, Inc., and EmCare HoldCo, Inc., our wholly-owned subsidiaries which are the co-borrowers, and each of their present and future domestic subsidiaries and 65% of the capital stock of controlled foreign corporations;

substantially all present and future intercompany debt of the co-borrowers and each guarantor; and

substantially all of the present and future property and assets, real and personal, of the co-borrowers and each guarantor.

The agreements governing our senior secured credit facility contain customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, mergers and consolidations, sales of assets, loans, acquisitions, joint ventures, restricted payments, transactions with affiliates, dividends and other payment restrictions affecting subsidiaries, a change in control of the company and other matters customarily restricted in such agreements. The agreement governing our senior secured credit facility also contains financial covenants, including a maximum total leverage ratio (3.75 to 1.00 as of December 31, 2009), maximum senior leverage ratio (2.00 to 1.00 as of December 31, 2009), a minimum fixed charge coverage ratio (1.20 to 1.00 as of December 31, 2009) and a maximum annual capital expenditure amount ($70 million as of December 31, 2009). The financial covenant ratios are based on adjusted EBITDA, which is the amount of our income (loss) from operations before depreciation and amortization expenses and other specifically identified exclusions. These ratios are to be calculated each quarter based on the financial data for the four fiscal quarters then ending. Each financial covenant ratio and capital expenditure amount adjusts over time as set forth in our senior secured credit facility. Our failure to meet any of these financial covenants could be an event of default under our senior secured credit facility.
Also,

Risk Factors Related to our Capital Structure

The interests of our controlling stockholders may conflict with interests of other stockholders.
Onex Partners LP and other entities affiliated with Onex Corporation, which we refer to together as the Onex entities, own all of our outstanding LP exchangeable units, which are exchangeable at any time, at the option of the holder, for our class B common stock. Our class A common stock has one vote per share, while our class B common stock has ten votes per share (reducing to one vote per share under certain limited circumstances), on all matters to be voted on by our stockholders. Prior to the exchange for class B common stock, the holders of the LP exchangeable units will be able to exercise the same voting rights with respect to EMSC as they would have after the exchange through a share of class B special voting stock. As a result, the Onex entities control 82% of our combined voting power. Accordingly, the Onex entities exercise a controlling influence over our business and affairs and have the power to determine all matters submitted to a vote of our stockholders, including the election of directors, the removal of directors, and approval of significant corporate transactions such as amendments to our certificate of incorporation, mergers and the sale of all or substantially all of our assets. The Onex entities could cause corporate actions to be taken even if the interests of these entities conflict with the interests of our other stockholders. This concentration of voting power could have the effect of deterring or preventing a change in control of EMSC that might otherwise be beneficial to our stockholders. Gerald W. Schwartz, the Chairman, President and Chief Executive Officer of Onex Corporation, owns shares representing a majority of the voting rights of the shares of Onex Corporation.

Onex has the voting power to elect our entire board of directors and to remove any director or our entire board without cause.

Although our current board includes "independent directors", so long as the Onex entities control more than 50% of our combined voting power we are exempt from the NYSE rule that requires that a board be comprised of a majority of "independent directors". Onex may have a controlling influence over our board, as Onex has sufficient voting power to elect the entire board, and our certificate of incorporation permits stockholders to remove directors at any time with or without cause.

As a holding company, our only material asset is our equity interest in EMS LP and our only source of revenue is distributions from EMS LP. Because the Onex entities have the voting power to control our board of directors, they could influence us, as the general partner of EMS LP, to take action at the level of EMS LP that would benefit the Onex entities and conflict with the interest of our class A stockholders.

While consolidated earnings are listed as growing for three years strait:
AMR: $73,539,000 Income from operations
EmCare: $139,597,000 Income from operations
Total: $213,136,000

Keep in mind that these 2009 figures are not yet collected, but:
"forward-looking statements." Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "project," or "continue," or other similar words. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. Our actual results may vary materially from those anticipated in forward-looking statements. We caution investors not to place undue reliance on any forward-looking statements.

6.8SPC_DUMP

03-09-2010, 23:35

Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Sounds gloomy, but paying off the five years of debt is totally possible with growing contracts with physicians, hospitals and the Gov. right?
Best of luck and I’d keep a close eye on next month:

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's Proxy Statement for its Annual Stockholders Meeting to be filed with the Securities and Exchange Commission within 120 days after December 31, 2009.

ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement for its Annual Stockholders Meeting to be filed with the Securities and Exchange Commission within 120 days after December 31, 2009.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to the Company's Proxy Statement for its Annual Stockholders Meeting to be filed with the Securities and Exchange Commission within 120 days after December 31, 2009.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement for its Annual Stockholders Meeting to be filed with the Securities and Exchange Commission within 120 days after December 31, 2009.

Sdiver

03-10-2010, 21:19

It might be related to:

Quote:
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2009, we had $451.0 million of outstanding debt, excluding capital leases, of which $199.8 million was variable rate debt under our senior secured credit facility and the balance was fixed rate debt, including the $250 million aggregate principal amount of our senior subordinated notes.

Interesting that you found this. It would make sense with what we found today on Yahoo Finance.

http://finance.yahoo.com/news/Emergency-Medical-Services-to-bw-3114430160.html?x=0&.v=1

I had one Paramedic, who has been with the company for over 25 years, tell me today, that he got a call from his financial advisor who told him, he may want to "Update his resume and start looking around."

I think we may have the makings of Enron "lite" in our area.

jatx

03-10-2010, 21:33

I think we may have the makings of Enron "lite" in our area.

FWIW, you are getting worked up about nothing.

Sdiver

03-10-2010, 21:50

FWIW, you are getting worked up about nothing.

I do hope that's the case.

That's why I started this thread. The wealth of knowledge on this board is amazing, and can help smoooooooooth my troubled mind.

craigepo

03-10-2010, 23:47

Maybe he is setting-up his knocked-up mistress in a beachfront condo.

Hard to determine intent from one single piece of evidence.

A text without a context is a pretext.