He's got plenty of cash
He's got plenty of friends
He drives women wild
Then drives off in his Mercedes-Benz
He's got a long wick with a flame at both ends
But don't let him go
Just give him a chance to grow
Take it easy, take it slow
And don't let him go
Don't let him go
Green Mountain Coffee Roasters' (GMCR) founder and former Chairman, Bob Stiller, is arguing "don't let him go" after his dismissal for having a margin call on GMCR shares that prompted the sale of another $125,000,000 on May 6, 2011. The fact that Stiller needed to borrow against his remaining shares is an interesting story in itself when you realize how much cash he had raised in "insider sales" in the last 12 months.
- March 14, 2011 11,144 shares $58.99 $657,384
- May 4, 2011 310,000 shares $68.34 $21,185,400
- August 3, 2011 18,050 shares $107.43 $1,939,111
- August 3, 2011 500,000 shares $107.43 $53,715,000
- November 22, 2011 200,350 shares $50.13 $10,043,545
- November 28, 2011 20,000 shares $48.92 $978,400
- February 14, 2011 500,000 shares $65.94 $32,970,000
- February 23, 2011 500,000 shares $66.68 $33,340,000
- March 26, 2012 19,065 shares $51.91 $989,664
That is a total of $155,818,504 since March 14, 2011 BEFORE the margin call that required the sale of 5,000,000 more shares at $24.68. Mr. Stiller claims that his stock was margined to pay for a $14,000,000 yacht. I guess the yacht dealer had a problem accepting any of the $155 Million in cash and dispels the theory that "he's got plenty of cash." Director William Davis was also caught up in the margin call on May 7, 2012 forcing him to sell 148,000 shares for $3,725,160 just 3 days after selling 400,00 shares on May 3, 2012 for $10,068,000. The bigger problem for Mr. Davis is that his margin account was not properly disclosed to shareholders in what GMCR refers to as "an inadvertent clerical error left the information out of the company's February 2012 proxy statement." Keep in mind that Mr. Davis was the chairman of the governance committee and a member of the four-person audit committee. Actually, I can't help but reflect on the irony of that in light of the concerns raised by Sam Antar, Gary Weiss, myself and many others.
The good news for us is that GMCR was originally recommended as a short October 22, 2010when we worried about the potential valley below. At that time, investors were just getting a small sampling of the insider selling to follow and a sample of how GMCR would treat "errors" in accounting. In spite of the SEC inquiry that began in September 2010 and continues today, the stock traded as high as $115.98. Along the way, insider selling mounted (just a small sample detailed above); red flags continued to be discussed on March 20, 2011; Sam Antar's analysis of earnings and inventory problems on May 9, 2011; a hint of the "errors" excuse that has become the rule rather than the exception at GMCR on June 6, 2011; and another reminder of the absurd valuation when GMCR traded above $100 per share on October 6, 2011.
This story of GMCR is still being written and is far from over. For now, Stiller argues that despite the margin account problem created by himself and Mr. Davis that GMCR should follow the "don't let him go" line and just understand that he needed a yacht and Mr. Davis non-disclosure of his margin account is simply a "clerical error." Not to mention that the first quarter was a complete disaster. The SEC will have to unravel who and what was known to insiders as they merrily lined up at the sell window in January-March 2012. All of that said, I recommend that we take this opportunity to close the short position for a profit of +21.09% or +13.44% annualized (we had to wait a long time for this one).
Rockwell Collins (COL) is another stock (albeit a much shorter time frame) I recommend watching closely to take a profit in after being recommended as a short on January 28, 2012. COL broke the support line today that I drew in January when we entered the position. I have studied technical analysis since 1986 and know enough to know that it is far from a perfect science. I recommend taking the +13% profit on any sign of a rebound but would let the profits run if COL continues the daily spiral it has been in since May 1, 2012.
The only option position we have to review in May is Freeport McMoRan Copper and Gold Inc. (FCX). I am recommending that we roll FCX May $40 put for $7.50 and sell the FCX Aug $40 put for $8.20. Recall that we entered the first ½ position at $38.38. The FCX May $40 call will expire Friday allowing us to recognize a profit of $1.42. The FCX $40 put was originally sold for $2.91. In a less volatile market I wouldn't be opposed to accepting delivery of the FCX shares based on the forward P/E of 6.23, $4 Billion in levered free cash flow, and anticipated yield of 3.5%. Rolling the option to August keeps cash free to take advantage of opportunities we may spot in other stocks and potentially earn an extra $0.70 if our original premise plays out.
- Buy to cover GMCR at the market, Thursday May 17, 2012.
- Watch COL closely and buy to cover on any sign of a rebound above the support line (I will post a recommendation when I observe this).
- Buy to cover FCX May $40 put, sell to open FCX Aug $40 put, allow FCX May $40 call to expire and wait for higher price to sell new call.