With all the recent leveraged buyout talks resurfacing about Best Buy (BBY) and news of $10 million worth of "continuity" bonuses being paid to executive management staff, very little attention has been paid to recent insider selling activity at the company.
On June 19, 2012, five Best Buy insiders posted transactions showing that they disposed of a very small part of their stake in the company. The five Best Buy insiders who processed those transactions on June 19/20, 2012, and their positions within the company, are outlined below:
1. James Muehlbauer disposed of 205 shares and is the chief financial officer.
2. Mike Vitelli disposed of 137 shares and is the head of the domestic enterprises.
3. Carol Surface disposed of 113 shares and is the head of human resources.
4. Keith Nelson disposed of 86 shares and is the company's general counsel.
5. Timothy Sheehan disposed of 86 shares and is the chief administrative officer.
This article explores both "sides of the coin" in an attempt to interpret what-- if any-- information can be gleaned from these dispositions.
First let's start with the Peter Lynch quote that: "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise." When this quote is applied to the five transactions above, it may lead many investors to believe that each officer's disposition of Best Buy stock is a non-event. To further support that conclusion, the percentage of the stock sold by each officer in relation to the overall amount each one holds is miniscule at best. In an attempt to help readers put each disposition into context, the percentage breakout of shares sold in relation to shares held for each officer is outlined below:
1. James Muehlbauer sold only 205 of the 109,532 shares held, meaning the sale amounts to a mere .18 percent of all shares held.
2. Mike Vitelli disposed of 137 shares of the 103,415 shares held, meaning the sale amounts to a mere .13 percent of all shares held.
3. Carol Surface sold only 113 of the 55,563 shares held, meaning the sale amounts to a mere .20 percent of all shares held.
4. Keith Nelson disposed of 86 of the 25,783 shares held (direct and indirect), meaning the sale amounts to a mere .33 percent of all shares held.
5. Tim Sheehan disposed of 86 of the 46,304 shares held, meaning the sale amounts to a mere .18 percent of all shares held.
Best Buy bulls would likely argue that the information is a non-event and that it wasn't worth reporting because the transactions were not relevant to any analysis of the company. First, none of the dispositions generated an overall amount that was greater than $5,000. Additionally, each disposition is only a microscopic fraction of each officer's overall stake. Finally, they would also argue that the dispositions are made even smaller by the recent "continuity" stock bonuses that some of the above mentioned officers received (i.e. James Muehlbauer, Carol Surface, and Michael Vitelli). Furthermore these transactions are miniscule when compared to the interim CEO's (George L. Mikan's) direct acquisition of 106,000 shares on May 22, 2012.
Of course, there are two sides to every coin. The flip side of the argument analyzes the patterns evidenced by "public officer stock sale information" available to investors over the past two years. This pattern analysis shows that during the two year reporting period, few of these officers have previously sold any portion of any of the shares they own. A comprehensive list of all the insider sale information can be found by clicking here. A breakout of prior sale by officer is outlined below:
1. James Muehlbaauer has only once previously disposed of stock during the two year reporting period (1,635 shares for $47,774 on April 18, 2011).
2. Michael Vitelli has never previously disposed of any stock during the two year reporting period.
3. Carol Surface has previously disposed or sold stock three times before during the two year reporting period. (2,699 shares for $87,609 on March 1, 2011; 10,894 shares for $276,489 on September 20, 2011; and 2,717 shares for $67,109 on March 1, 2012).
4. Keith Nelson has never previously disposed of any stock during the two year reporting period.
5. Tim Sheehan has only once previously disposed of stock during the two year reporting period (120 shares for $0 on October 20, 2010).
Best Buy bears would likely argue that the most recent dispositions are a material event. They would point to the significant differences between the June 2012 dispositions and the data from each of the officer's prior sales or dispositions (or lack thereof) from the past two years. For those officers that did previously sell or dispose of stock, the amounts of all prior June 2012 transactions would seem to indicate that those dispositions or sales were made in anticipation of a large upcoming personal purchase, which is unlike the small dollar value dispositions that were recently made.
Best Buy bears may also argue that each of the June 2012 transactions shows that each officer set up the necessary automatic sale instruments within their stock compensation plans six months ago because moving forward those officers would prefer to be partially paid in cash, rather than accumulate stock that they believe will decline in the future.
Finally, they might also argue that this shows that C-suite executives have lost faith in the company, like the rank and file employees who have started to join LinkedIn (LNKD). More information about rank and file Best Buy employees who are seeking employment elsewhere can be found by clicking here. They would also point out that the continuity bonuses (which were issued on June 21, 2012) were a direct move to stem the flow of insiders from selling off their shares.
Either case (both bull and bear) have additional potential arguments that could be made to support each position. The information presented above will hopefully be a starting point for investors to conduct their own due diligence, which could result in action, depending on which case investors believe is more plausible.
Disclosure: I am short BBY.