When a company founder and chief executive dumps most of his own stake at a loss, it is usually a pretty strong indication that other investors would be wise to jump ship as well. After all, if the man whose signature is on the stock doesn?t think it can make decent gains, what hope is there for the rest of the market?
Such a message, however, is not what Safeguard Scientifics Inc. Chief Executive Warren “Pete” Musser claims he was trying to send when he recently sold more than 80% of his Saefeguard shares through a series of privately-negotiated block transactions. The news came to light Tuesday in a formal announcement issued by the company.
Musser sold 7.5 million shares to “satisfy personal financial obligations under several margin loan arrangements,” the company said. It is the first time Musser has sold any of his Safeguard shares, some of which he has held for more than 40 years.
In a prepared statement, Musser blamed the recent tech market turmoil for his financial woes. “I regret being in a position where there was no alternative other than the sale of Safeguard shares,” he said. He also noted that his belief in the company hasn?t wavered since he formed Safeguard in 1953.
That said, the company ? which identifies, develops and manages Internet infrastructure companies in exchange for equity stakes ? hasn?t been without its share of troubles in the wake of the tech stock ruins on Wall Street. Along with affiliates like Internet Capital Group and U.S. Interactive Inc., Safeguard?s stock has tumbled more than 90% below its annual high.
Indeed, it appears that the 73-year-old Musser has sacrificed quite a substantial nest egg to pay his debts, as he sold the shares at nearly bargain basement prices. All tolled, they would have been valued at as much as $739 million in March when the stock was trading at its annual peak of $98.50. At best, the shares were likely worth less than $100 million when he sold them in October. At market close yesterday, Safeguard?s stock priced at $8.50 per share.
Known to his friends as a savvy and shrewd investor, Musser had borrowed to purchase the stocks, and again found himself in the red after taking a loan from Safeguard to repay his brokers. The company also guaranteed him an additional $35 million loan through a third-party financial institution.
Musser has since made good on the $10 million Safeguard loan, the company said.
As of now, Musser owns 1.5% of Safeguard stock and will maintain his dual positions of chairman and chief executive of the Wayne, Pa.-based firm.
It is also important that while Musser has now fallen victim to the vagaries of the very industry he fought to keep afloat, he isn?t alone. Indeed, in recent months several other top tech executives like WorldCom Inc.’s Bernie Ebbers and PSINet Inc.’s Bill Schrader have been forced to liquidate personal holdings in order to make margin call against personal loans.
Can Safeguard Survive?
Despite the immediate aftershocks rippling through the market as investors react to the news, analysts remain fairly optimistic about Safeguard?s future performance.
Dan Renouard, an analyst with Robert W. Baird & Company Inc., wrote in a report earlier this week, “While unfortunate, we are confident the share sales are related exclusively to exigencies of Mr. Musser?s personal financial situation, and do not reflect a loss of confidence in the company by either management or principal shareholders.”
A spokesperson for Safeguard confirmed that the same sentiment exists inside the company as well. “We?ve always had the ability to identify good tech opportunities and the secret ingredients to success. We will fully rise and recover again,” she said.
Robyn Kurdek can be contacted at Story Feedback.
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