No one can foretell the stock market's next twist. But thanks to an unusual move by Coinstar Chief Executive David Cole, shareholders can...
No one can foretell the stock market’s next twist. But thanks to an unusual move by Coinstar Chief Executive David Cole, shareholders can now predict in detail when he will sell chunks of his company stock.
Here comes the tricky part: What will Coinstar shareholders (among them a hedge fund that’s amassed a big stake) see through this unique window into the top executive’s portfolio plans? And should other CEOs make the same disclosures?
This past week Bellevue-based Coinstar revealed that Cole plans to sell two-thirds of his holdings, in increments, if the company’s stock begins climbing past a $35 trigger point. Should the stock reach $50 over the next year, Cole will have sold almost 394,000 shares for gross proceeds of $17.6 million.
That’s the kind of detail that investors rarely get about the controversial 10b-5 trading plans that top company officials sometimes use so they can sell shares over time without running afoul of insider-trading rules.
Most Read Business Stories
- FAA safety engineer goes public to slam the agency's oversight of Boeing's 737 MAX
- MacKenzie Scott marries Seattle teacher after Bezos divorce
- Google puts lid on cookie jar and ends an internet era | Commentary
- 55,000 in Washington state may have to pay back thousands in jobless benefits
- Microsoft’s $10 billion Pentagon deal at risk amid Amazon fight
“I’ve never seen anything like that before,” Paul Latta, director of research at Seattle-based brokerage Ragen MacKenzie, said of Cole’s plan. “I don’t think I’ve ever seen this level of disclosure.”
Amazon’s Jeff Bezos reported selling $135 million worth of stock on Feb. 15 under such a plan — but no one except the SEC and his broker knows what triggered that sale or under what circumstances more shares might be sold.
Likewise, some executives at Nordstrom and Starbucks have 10b-5 plans, but they’ve disclosed nothing except how many shares they will sell.
By contrast, Cole’s filing gives the full schedule: He would exercise options for 20,000 shares and sell the stock if Coinstar hits $35, another 20,000 at $38, then more at an accelerating pace. (A link to the full plan is posted online with this story.) The 60-year-old Cole wants to “diversify his investment portfolio,” the filing says.
Coinstar, which runs coin-counting machines and other vending equipment, declined to explain further why it’s opening up this way. “We felt that the information provided in the (SEC filing) represented good disclosure,” wrote PR director Marci Maule in response to questions.
Coinstar shares nearly brushed $35 last October, just as they did early in Cole’s seven-year tenure as CEO. The shares have mostly bounced between $26 and $34 in the past 18 months. Meanwhile, an assertive hedge fund, Shamrock Activist Value Fund, has acquired 12 percent of the company.
Should shareholders be encouraged that the CEO contemplates the stock reaching $50 in the next 12 months? Or be worried that he’s ready and willing to shed two-thirds of his stake if the stock rises by 60 percent from current levels?
Despite a string of deals to expand Coinstar’s business, does Cole’s schedule of potential sales suggest he doesn’t expect growth that would make the stock double or triple?
“I’m happy to see the full disclosure,” said Latta, “but I feel like it kind of caps the upside.”
Some critics say 10b-5 plans simply function as a fig leaf for executives to structure sales plans around events they expect to unfold in the future.
Shareholders in Coinstar might conclude, for instance, that the CEO is simply setting up profit from any short-term rise in the stock should Shamrock’s interest intensify.
In short, the detailed disclosure raises as many questions as it answers. But wouldn’t shareholders in Amazon, Nordstrom and Starbucks love to have the same glimpse into their CEO’s selling schemes?
When the rules for such 10b-5 plans were created early this decade, the SEC considered requiring execs to publicly disclose more details concerning their plans. Seattle law firm Perkins Coie was among those opposed.
“We are especially concerned that there should be no required disclosure of pricing,” it wrote in comments submitted to the agency.
“Such disclosure could lead to misinterpretation by investors as to the insider’s view of a company based on a low ‘floor’ price or a high ‘ceiling’ price” for stock sales.”
The SEC relented. But Coinstar (a client of Perkins Coie, as it happens) has gone down that road nonetheless.
Now the job of interpreting, or misinterpreting, that disclosure is up to the company’s shareholders.
Comments? Send them to Rami Grunbaum: rgrunbaum@-
seattletimes.com or 206-464-8541