From: Linda (firstname.lastname@example.org)
Date: Sat Dec 09 2000 - 21:35:46 PST
[It is said that with the possible exception of semiconductors,
stocks participate in The Next Big Thing only once. If your
company is fortunate enough to be part of this, it's probably smart
to be profit-taking on a regular basis.
The sad part here is that this CEO is being forced to sell at a time
that the Markets are starting to exhibit bottoming behavior. For
technical analysts, Friday was an important for Nasdaq with a
so-called follow through day. Perhaps more importantly, investor
sentiment appears to be changing. Profit warnings from Intel,
LSI Logic, and Altera no longer cause the stocks to sell off. It is
not the news but the reaction to the news which helps to define
Market tops and bottoms.
December 6, 2000
Margin Calls Claim Another Tech Veteran
By WILLIAM M. BULKELEY
Staff Reporter of THE WALL STREET JOURNAL
Warren V. "Pete" Musser, the chairman and founder of Internet
incubator Safeguard Scientifics Corp., was forced to sell most of his
company stock to meet margin calls, as the high-tech stock decline
continues to roil executive ranks.
Safeguard, based in Wayne, Pa., announced that Mr. Musser has sold
7.5 million shares in privately negotiated transactions, starting in
October. Mr. Musser held 9.17 million shares, or 8.5% of Safeguard's
shares outstanding, last April, according to the company's proxy
statement. He hasn't filed to sell any other shares since then.
Mr. Musser didn't return calls seeking comment. If he sold the shares
at the October low of $13, he would have realized at least
$97.5 million. At Safeguard's peak value of $99 a share last March 20,
Mr. Musser's total stake in the company was worth $908 million, and
the shares he later sold were worth $743 million.
A number of executives have recently cited margin calls -- a lender's
demand for more collateral to back loans originally secured with stock
-- as a reason they have been forced to sell shares. Among the margin
casualties of the tech-stock downdraft are Bernard Ebbers, president
of long-distance carrier WorldCom Inc., and PSINet Inc. Chief Executive
As Mr. Musser's dilemma shows, the margin calls are also a risk for
the company whose executives get them. Safeguard, which successfully
backed such companies as Novell Inc. and Internet Capital Group Inc.,
said it loaned Mr. Musser $10 million and guaranteed a loan for
another $35 million to meet the margin calls.
Safeguard's president, Harry Wallaesa, said that Safeguard got
involved in order to "maintain an orderly trading market" in
Safeguard stock. Without the Safeguard loan and loan guarantee, the
margin call would have resulted in a large amount of stock being
suddenly dumped on the market. With the credit, Mr. Musser was given
some breathing room to arrange the negotiated, private sales, slowing
any effect on the overall market.
Mr. Wallaesa said the $10 million loan had been fully repaid. He said
the $35 million loan guarantee is fully secured by Mr. Musser's
interests in real estate and securities.
It isn't clear how much of the proceeds of Mr. Musser's sales were
applied to margin calls. However, people familiar with the situation
say that Mr. Musser recently bought a $3.2 million farm nearby in
Chester County, Pa., one possible reason he could have been borrowing
on his Safeguard holdings.
Safeguard has fallen some 90% in the technology downdraft and was at
$8.81, up $1.25, in 4 p.m. New York Stock Exchange composite trading
Mr. Musser, who is 73 years old, started making money for Safeguard
with investments in start-ups back in the 1980's. Last year
Safeguard's market value exploded, thanks to its success in the
initial-public-offering market with Internet Capital, another
incubator. But Internet Capital has plummeted since March, and so
In a statement released by Safeguard, Mr. Musser said he had never
previously sold Safeguard stock and "wouldn't be a seller today
except for my personal financial situation."
Mr. Wallaesa added, "He's a wonderful man. It's tragic he's in
Robert Gabele, who follows insider trading for First Call/Thomson
Financial, said Mr. Musser is unusual among longtime top executives,
because he hasn't sold off his holdings to diversify. "It's more
common to see some selling in persons of advanced age," he said.
Robert McCord, a Pennsylvania venture capitalist and friend of
Mr. Musser, says Mr. Musser is revered in the area because of his
philanthropy and role in building a venture-capital community. "He
just doesn't have the proper risk aversion when it comes to
diversification. He's one of the founders of venture financing, but
you realize, this guy just doesn't like to sell stock."
It isn't clear how much Mr. Musser had borrowed in margin loans or
what he had done with the proceeds.
Mr. Musser also has personal stakes in a number of Safeguard's
portfolio of companies it has taken public, many of which have also
plunged into single-digit prices. For instance, according to
Securities and Exchange Commission filings, he owns 413,040 shares
of Internet Capital, where he is a director. He owns 443,283 shares
of CompuCom Systems Inc., a Dallas computer-services company, of
which he is chairman. He owns 445,566 shares of Cambridge
Technology Partners Inc. a computer consultant of which he is
Safeguard's stock, which many investors view as kind of a mutual
fund of start-up technology companies, has plunged this year with
the Internet market. Michael Forbes, an analyst with First Albany
Corp., says Safeguard is currently selling at just 1.01 times the
value of the publicly traded companies in its portfolio plus its
cash on hand. He estimates that after including the closely held
companies in its portfolio, Safeguard is selling at just 60% of
its net asset value.
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