Will Best Buy Be the Next Sirius XM or Amarin?

A year ago, Best Buy (NYSE: BBY  ) founder Richard Schulze wanted to team up with private equity investors to buy enough shares to take the consumer electronics superstore chain private. Now he's ready to go in a different direction.

Schulze will enter into a Rule 10b5-1 plan where some of his shares will be sold through installments between October and March of next year. He explains the move in an SEC filing last night, describing it as "part of his personal long-term strategy for asset diversification and liquidity."

We don't know how much of his roughly 20% stake in the company will hit the market, but there will be filings submitted detailing every sale.

This isn't the end of the world. Executives often have too much of their wealth tied to company stock, and these pre-arranged plans allow for automatic sales without worrying about insider trading allegations if stock-moving events happen along the way.

Investors don't necessarily have to take this as a sign to follow Schulze out the door. There have been plenty of companies that have continued to thrive as insiders engage in automated stock sales. 

Mel Karmazin, now the former CEO of Sirius XM Radio (NASDAQ: SIRI  ) , initiated a Rule 10b5-1 plan in February of last year. The satellite radio provider's stock has soared 71% since then.

On the other end of the debate we have Amarin Pharmaceuticals (NASDAQ: AMRN  ) . A few insiders filed a 10b5-1 plan last summer, unloading stock just as its triglyceride-tackling Vascepa was gaining regulatory approval. Amarin's stock has gone on to shed half of its value.

Which way will Best Buy head in light of Schulze's plan to divest?

Before tackling that, let's point out that his original plan last summer was to take Best Buy private at $24 to $26 a share. The stock was trading in the teens then, so it was a generous exit strategy at the time. Now that the stock has gone on to more than double -- trading $10 a share higher than what he felt the company was worth last summer -- why wouldn't he be a seller instead of a buyer?

One can't blame him. 

It would also be hard to blame investors who follow him on the way out. Unlike Sirius XM, which was experiencing accelerating subscriber growth, Best Buy still has problems. New CEO Hubert Joly has done a great job of shaving costs and stabilizing the pesky decline in sales, but the fundamentals aren't there to justify this year's big gains.

If anything, skeptics should be punching holes in Schulze's sell thesis. He wanted to buy more of the company last summer, and now he suddenly has visions of diversification? 

Follow the leader.

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  • Report this Comment On August 27, 2013, at 12:16 AM, mistacy wrote:

    "trading $10 a share higher than what he felt the company was worth last summer -- why wouldn't he be a seller instead of a buyer?" EXACTLY. So why other investors would not see Schulze's move as a signal to sell. He is a smart man. If he thought the stock still had a long way up to go, why would he sell now? He probably is thinking like me. All good about BBY is already priced into the stock share price at this point. Time to cash in.

  • Report this Comment On August 27, 2013, at 8:38 AM, horticultor wrote:

    If BBY turns out like AMRN is going to, investors will be elbowing each other out of the way to get on board.

  • Report this Comment On August 28, 2013, at 12:59 AM, lowmaple wrote:

    His plan to private failed so probably does not think he be able to pull it off. And mistacy says take some profits. He still may be able to make it private but it would have to have a huge drop. So he wouldn't need all his shares if the company has some more bad years. The longer the company has trouble the greater the chance it may not be worth the effort.

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