Mine Safety Digs Itself

Now here's a coincidence. In just two weeks' time, not one, but two Motley Fool Hidden Gems picks have announced repurchases of large stakes of their shares outstanding from company "insiders." For Middleby (Nasdaq: MIDD), which we wrote about in the waning days of 2004, the insider in question was about as "inside" as these things get: When its chairman of the Board of Directors retired, he and his family together turned over a positively massive number of shares to the company -- about 20% of all shares outstanding.

In Monday's announcement, the "insider" tendering shares of Mine Safety Appliances (NYSE: MSA) to the company was actually the estate of the deceased mother of Mine Safety's chairman and CEO.

Mine Safety's transaction was much smaller than Middleby's. Just over 1 million Mine Safety shares will be sold back to the company -- less than 3% of shares outstanding. However, shareholders are getting a favorable price for the transaction, just as in Middleby's case. Whereas Mine Safety's shares opened on the day of the announcement at $51.15, the company will be buying these shares back for just $46.36 -- nearly a 10% discount.

Some other differences between the two transactions:

• Whereas Middleby will have to take on about $80 million in debt to finance its buyback, the more limited scope of Mine Safety's repurchase means the company can -- at least theoretically -- finance it entirely from its corporate coffers.
  
  
• No retirements are taking place at Mine Safety. This is a straight-up sale from the estate to the company. In addition, Mine Safety already has a single person serving as both chairman and CEO. Although that's not necessarily a good thing, per se, at least there's no further concentration of decision-making powers going on at the top.
  
  
• This buyback should not meaningfully affect insider ownership, which stood at 27% before the announcement and should fall no lower than 24% post-buyback. What's more, since the estate of the CEO's late mother was probably not actively involved in the company's management, its relinquishment of its ownership stake should have no effect whatsoever on the level of true insider commitment to Mine Safety's success.

Put it all together, and this announcement has to be considered a plus for Mine Safety investors.

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Fool contributor Rich Smith has no position in either of the companies mentioned in this article.