Prada (1913.HK) - there is a saying in investment markets that a CEO/founder will sell shares in his company for a whole variety of reasons e.g. wife wanted a new house, in-laws needed a holiday...but the CEO/founder will only outlay cash to purchase shares on-market for ONE reason. He thinks he will make money. Period.
Prada takes it a step further. Here is why.
1. The shares outstanding in Prada Group is 2,558,824,000. Read it in the Annual Report. It hasn't changed for years.
2. The 'family' - that is Miuccia Prada, Patrizio Bertelli and siblings of Mrs Prada own 2,046,470,760.
3. As a percentage, that ownership is 79.9770%. The decimal points are key here. Just keep listening for a moment.
4. Hong Kong stock exchange listing rules require a minimum free-float of 25%. Should a company however, at its IPO, be approved to have a lower free-float requirement, that lower limit will apply indefinitely.
5. So Prada's free float was 20.0230%. Prada's approved limit at IPO was 20%.
Now here comes the FUN part.
6. Patrizio Bertelli's personal company is called PABE 1. He owns 100% of it and it holds his shares in Prada Group. A fully owned subsidiary of PABE 1 is called PABE-RE LLC. RE stands for Real Estate...He owns some properties here.
7. Patrizio Bertelli through PABE-RE LLC purchased 1,000,000 shares on market over a few days in May 2017.
8. You might think "oh it's only US$5mln". It's a mistake.
9. The free-float has now fallen below 20%. It is 19.9839% to be precise.
10. A few years ago, Prada Group pleaded to the top brass of the HK stock exchange to conduct a share buy-back. It was refused on several occasions because they wouldn't budge on a lower free-float limit.
11. This is a monumental signal because it crosses a line that the HK stock exchange so firmly drew and insisted on.
12. Oh and don't forget, Mr Bertelli is not throwing US$5 million down the drain. He also thinks he can make money by buying shares on market.
13. By the way, he paid an average price of around HK$36.50.
What does the market do? Weigh facts incorrectly and ignore. Efficient my a....
Disclosure: I am/we are long PRDSY.
Additional disclosure: I am long 1913.HK not PRDSY - which was the only option on SeekingAlpha.