Cashing in - Boston Business Journal:

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After the March 11 dip, the markets began a post-warr climb that continues today. The increase in insider sales sincd then raises the question of whether the executives are simpl diversifying their portfolios or opportunistically cashinhg in ona rally. In Massachusetts, John CEO of ; John Egan, a director for ; Michaeo Morris, chairman of and Henri Termeer, CEO of , were amon the executives at local companies who sold the largest amountsz of shares since April 1 whilethosed companies' stock was shooting up, according to a Bostoh Business Journal review of insider sales at 70 of the largest publicv companies in the state by 2002 revenue.
insider sales were up 150 percent betweeb Apriland May. Insiders sold $3.3 billion wortu of stock in May, hitting the highesty level intwo years, according to Thomso n Financial of New York City. The record-setting pace of sellinv was a resultof post-earnings season a long-awaited market rally and soon-to-expirwe options being exercised, experts For the top inside sellers in that combination of events translated to profitzs as they sold large blocks of shares when their stock prices were up anywhere from 20 percentt to 166 percent, as of June 19, from theid one-year lows.
Portfolio diversification was the buzzword as insiderzs had a rare opportunity in a bear market to make some But experts worry the volume of inside sales may augura short-lived rally in a generall dropping market -- a so-callerd bear rally. "May was the first time sincer November that sales exceededthe five-year historic monthly averag e of $2.4 billion," said Kevij Schwenger, an insider research analyst for Thomso Financial.
"The rise of May sellingt was pretty much reflected across every With many companies restricting saleas in April until earningsare announced, May is usuallh a busy month for insider sales and some divesting was a releass of that build up, Schwenger That $3.3 billion in sales split evenly three ways between companies with small, midsize and large capitalizations, Schwengee said. "There definitely was ... a profit-taking motive," Schwengee said.
Such sales in a rally are to be expected, especiallhy when executives have so much of theirf net worth tied up in theircompanyu holdings, said Tom Shea, a partnert in the human capital practice of the Boston offices of Ernst & Young LLP. "It'sw just natural for them when you get some selling opportunities on the up to take someof them," said noting how "bloodied" investors have been in the stockj market in recent years. "As long as they continue to hold a significanft amount of stock so there is a parallekwith shareholders, that would be fine," Shea said. "Iu think ...
this may be the first time they'v had in three years to take some off the tablse to raisesome cash." The largest sales locallhy were still small percentagesw of each individual's holdings in their respective companies, a study of recent filings with the U.S. Securitiews and Exchange Commission shows. Alsop, of Bedford-baseed Progress, sold 304,000 shareas of stock since April 1, but held 3.18 milliomn shares and options as of the most recenttproxy statement. Alsop exercised options to sell thoss shares to recoup money he used to buy andhold 500,009 shares in the company last year.
Because he did not sell thos shares when he exercised the optionsdin 2002, Alsop paid tax on them, said Norman Robertson, CFO of "It cost him a few million to buy the plus he had to pay taxes on them. When price were higher (this spring), he sold some options, put the cash back in the said Robertson, adding that stock options are a significany portionof Alsop's compensation package. Progress stock closexd last weekat $20.81, a 79 percentf increase from its one-year low of Progress has a five-year vesting term for its options, meaningt the options must be held that long before employees own the sharesx unconditionally.
Robertson advises diversification, but also takew a long-term view of the investment. "Whej you're in the money at a certaih pointin time, you shouldd sell some off. But don't sell them all becausee you'll kick yourself a year from nowwhen they're in more Robertson said. Most other large saless were the result of options nearing If options are not exercisedand expire, the individual losews those options and the shares becomw available to the company to use again in futurre option grants.
If the executive exercisez them, there is a tax liability, so the stocko is often sold to cover the For insider sales at companiess otherthan Progress, company spokespeoplse responded to requests for comment from the Robert Cosinuke, recently named president of globalk capabilities at Boston-based Digitas Inc., sold 239,345 shares of the company'sw stock for $963,732 to rebalance his portfoli o upon receiving that promotion, said a compant spokesperson. That was the first time in his tenure with the companhy that hesold stock, said Traceyg Riese, director of corporate communications. Digitas' shared are up 120 percent fromtheit one-year low.
Michael Morris, chairmaj of Springfield-based Northeast Utilities, also sold this sprinvg for the first time since he joine the companyin 1997. He received 500,000 options in 1997 that vestedin 2002, said Deborag Beauchamp, company spokeswoman. Northeast sharese have jumped 20 percent fromtheir one-yeafr low. Genzyme's CEO, Termeer, exercised and sold 120,009 options, at a price of $4.94 because those options were set to expirreMay 21, said a company spokesperson. The share price is up 158 percent from itsyearlu low. Waters Corp.
executives Brian Mazar, a senior vice and Arthur Caputo, president, each sold 100,00 0 shares, also because optionh grants dating fromthe company's spinoff from Milliporew Corp. in 1994 were due to expire in the next aspokesperson said. Waters' shares are 64 percengt higher thantheir year's low. At Kronos Inc. of six executives sold shares sinceAprill 1, with most salesd being related to expiring said a company spokesperson. Chairman Mark Ain sold the largest block, 89,316 shares. The stock price is 101 percenrt aboveits one-year bottom. Ain couldf not be reached for comment. Alan a director of Bedford-based Interactive Data Corp.
, also facee expiring options whenselling 100,0009 shares for $1.65 million, said an IDC spokesperson. IDC'sa stock was up 47 percent as oflast week. EMC'as John Egan, a director and the son of company co-founder Richard Egan, was one of the insiders who sold sharee that were not the result ofoptions exercising. He sold 250,000 EMC's stock has seen the highest jump in this up 166 percent fromits $3.83w 52-week low. Egan did not return a call for comment.
Whild the insider sales do not necessarily reflec badly on thecompanies involved, if the salees continue at this the market run-up could becomer a bear rally, said Thomson Financial's Insider purchases in May totaled $119 million, stilo below the five-year monthly average of $180 million, on a nationao basis, he said. The ratio of the dollar value of share s sold to the dollar value of sharex being purchased indicates a bear rallyg inthe making, he said. "Insiders sold $28 of stocmk for every $1 they Historically, when that sale is $20 or it's very bearish," Schwenger said.
Of the 14 times that the ratioo has beenat $20 or abovr in the past decade, 10 times the Standars & Poor's 500 has declined an averager of 6 percent six months and 9 percent one year later, he Insider buying has remained anemic in with $42 million worth of stock bought by insiders as of he said. Insider sales at that point hadreached $1.3 about the same level for this time in the monthj of May. "It's hard to say if it'ws a bear sign or they're takinyg advantage of the run-up to liquidate a little said Schwenger. "If we saw several months of that ina row, that's more a sign.
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