RIM insiders haven’t reported buying shares on the open market since July 2010 as its stock fell more than 60 percent, according to data compiled by Bloomberg. Instead, they sold stock at least 11 times over that span. At least 55 of the other 59 companies in the S&P/TSX 60 index of Canada’s largest and most-traded stocks have had insider purchases since July 2010.
“If they don’t see value in it at these levels, how am I supposed to see value, given all the uncertainty RIM faces?” said Richard J. Moroney, chief investment officer at Horizon Investment Services LLC in Hammond, Indiana. The firm manages about $150 million and sold its last RIM shares in April. “If you look at the earnings and cash flow, the stock is still very cheap.”
Shares of Waterloo, Ontario-based RIM are hovering at 2005 levels. Last month, the company missed analysts’ profit and sales estimates after customers defected to Apple Inc. (AAPL)’s iPhone and handsets that run on Google Inc. (GOOG)’s Android platform. RIM’s share of the global smartphone market dropped to 12 percent in the second quarter from 19 percent a year earlier, according to Gartner Inc.
Takeover Target?
RIM advanced $2.92, or 14 percent, to $23.92 at 12:09 p.m. New York time in Nasdaq Stock Market trading, the third jump of more than 8 percent within a week amid speculation it may become a acquisition target.
The lack of insider purchases could portend a takeover, since executives cannot legally buy or sell shares if they are considering a significant change in the business, Moroney said.
Tenille Kennedy, a spokeswoman for RIM, said co-Chief Executive Officers Jim Balsillie and Mike Lazaridis weren’t available to discuss stock purchases and declined to comment further. Together, the two men own 10.5 percent of RIM’s outstanding shares and are also its co-chairmen.
RIM board members Antonio Viana-Baptista and Roger Martin declined to comment. Other directors — David Kerr, Barbara Stymiest, John Wetmore, John Richardson and Claudia Kotchka — didn’t return messages left for them.
‘Apt’ Question
RIM’s top executives have expressed confidence a rebound is imminent. In August, the company released a batch of faster devices with touch-sensitive screens and plans to introduce a new phone operating system next year to try to reverse two years of declining market share and a recent sales slump.
Balsillie told analysts last month that the phones are getting an “excellent reception.” Lazaridis told the same audience that he understood that the past few quarters had been “challenging” and that “we are confident that we are on track to return to growth in Q3 and beyond.”
Given their bullish remarks, it is “very apt” to ask Balsillie and Lazaridis about the lack of share purchases, said Matt Thornton, an Avian Securities LLC analyst in Boston. “You could say ‘well, why is no one in your organization, including you both, buying stock?’” Thornton has a neutral rating on RIM.
Other executives of Canadian companies, by contrast, have taken advantage of falling stock prices. At least five insiders of Calgary-based natural-gas producer Encana Corp. (ECA) have bought shares since July 22, according to regulatory filings. The stock has lost 34 percent this year.
Rona Inc. (RON) Chairman Jean Gaulin, Chief Financial Officer Dominique Boies and director Jean-Guy Hebert bought a combined 204,810 shares of the home-improvement retailer from Sept. 15 to Sept. 19 after the stock lost 30 percent on the year.
‘Difficult Position’
Other technology executives have in recent years also taken advantage of drops in stock prices to add to their stakes. Dell Inc. CEO Michael Dell, who owns 15 percent of the computer maker he founded, bought the stock five times in 2008 as its stock fell 58 percent, including twice in September 2008 after the shares lost 20 percent in just over a week.
AOL Inc. CEO Tim Armstrong, who owns 1.3 percent of the Internet company, almost doubled his stake in February after the stock slumped 18 percent in the prior three months.
The lack of purchases by RIM executives is surprising given how cheap the stock is, Thornton said. RIM trades at less than 4 times earnings, one third the average price valuation of its technology peers, and has the lowest valuation on the S&P/Toronto Stock Exchange 60, according to Bloomberg data.
Former Chief Marketing Officer Keith Pardy was the last RIM director or executive to acquire shares on the open market when he bought 4,525 shares in July 2010, according to Bloomberg data. Pardy, who joined RIM in 2009, left the company this year.
‘They’re Behind’
RIM executives shouldn’t be blamed for understanding the shares may take a while to rebound, Brendan Caldwell, chief executive officer of Caldwell Investment Management Ltd., said in a telephone interview. The firm oversees about C$1 billion ($950 million).
“I could certainly understand a senior manager who’s already got all his net worth tied up being very focused on making RIM work but not wanting to put himself in an even more difficult position financially,” said Caldwell, who doesn’t oversee any RIM shares.
Denver-based Janus Capital Management LLC, New York-based Neuberger Berman Group LLC and Boston-based Wellington Management Co. are among the investors who have sold all their RIM holdings this year, according to Bloomberg data.
Benjamin C. Halliburton, a managing director at Tradition Capital Management LLC in Summit, New Jersey, said RIM’s executives and directors are likely wary of risking further losses on their investments in the stock. Tradition Capital, which manages $450 million, sold all 68,946 of its RIM shares in the second quarter.
“They probably recognize that they’re behind and are not willing to put their own capital behind the company at this point,” he said.
(Bloombergnews)