Insider Trading:
Corporate Buybacks and Gateway Buys
by Paul Elliott, editor
Insiders' Chronicle
You've
heard talk about a flurry of corporate bonds in the wake of the
September 11 attacks. Maybe even a bit about high-profile corporate
execs pledging to buy some for Team USA. Both are well intentioned,
yet obviously have different motivations and different outcomes.
Still, if you are anything like us, you'd welcome either, if
for no other reason than their calming effect on investors.
This is no time to
be skeptical, but if you're anything like us, you've also been
watching the tape and questioning the veracity, or least timeliness,
of some of these buyback announcements. It has always been our
position that we'll believe in a buyback when we see it. In fact,
on average, roughly 70% of the shares authorized for buyback
since 1994 have in fact been repurchased.
In a real sense this
is good news, at least it you're a fan of buybacks. After all,
in September alone more than 170 companies announced intentions
to repurchase more than $30 billion of their companies' shares.
If corporations stick to anything near their historical rate
of follow-through, they will be buying back a whole lot of stock,
which would come in handy should selling pressure persist and
hopefully prove prudent over the long-term.
As for execs buying
for their personal account? We'll be on the lookout. As you know,
insiders file evidence of their trades on the 10th of the month
following the trade. That said, there is no law against filing
early, so we expect to see some action soon. And contrary to
our usual skepticism, we'll take it even if it is more than anything
symbolic.
Just prior to the September
11 attacks, Gateway Inc. (GTW) front man Theodore Waitt
and others took advantage of the stock's weakness to add to their
positions. From August 31 to September 7, three insiders acquired
a combined 853,000 shares, including 13,000 shares on the open
market at $8.60 to $9.09 per share. Waitt himself exercised three
series of options to acquire 840,000 shares, with his first acquisition
since taking the company public in 1993.
This sudden burst of
activity is not only the first significant round of accumulation
at Gateway since insiders bought at the IPO, it is the largest
in company history. While this is impressive in its own right,
Waitt's recent accumulation is even more so, given that he has
been an almost systematic seller over the years.
In fact, insider selling
had been the norm at Gateway in its heyday. That Waitt has now
reversed course along with newly appointed CFO Joseph Burke is
striking. Even more so given that both Burke and CTO Robert Burnett
purchased shares on the open market while their options are underwater.
That Gateway execs had refrained from selling at depressed levels
was a relief; the recent activity provides an even stronger vote
of confidence.
Editor's Note: Paul
Elliott is editor of the Insiders' Chronicle, 1455 Research Blvd,
Rockville, MD 20850, 1 year, 50 issues, $315. Includes four quarterly
summaries of insider transactions. The Insiders' Chronicle, a
weekly newsletter, offers a concise interpretation, analysis
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