Reuters reported that McData (NASDAQ:MCDTA) Chairman John McDonnell and his wife each plan to sell 230,000 shares of Class B common stock under prearranged trading plans. The timing is interesting, as the storage area network (SAN) switch maker issued a press release this morning to report gains in market share.
But is it worth sweating over a $5.5 million sale? Probably not.
In last year's TMF Select Special Report "Companies on the Road to Ruin," we surmised that in the phrase "enormous insider selling," enormous is a relative term. As of July, McDonnell held 6.28 million Class B shares, and his wife held 3.38 million, for a combined 28.6% stake. So the latest sale represents less than 5% of their total holdings.
While not exactly a vote of confidence, it's become more common for corporate insiders to want to diversify their holdings. That said, with the stock tripling off its October 2002 lows, the couple plans to sell 10,000 shares each, every week until each has disposed of 230,000 shares.
Personally, I'd prefer to have insiders buying or simply holding stock in their own companies, rather than selling -- especially the chairman. After all, when the chairman sells, it is somewhat reflective of his attitude towards the company.
Still, McDonnell and his wife will own more than a quarter of McData, so the sale is not worth sweating over.
Want a copy of "Companies on the Road to Ruin? "Sign up for a free trial for Tom Gardner's Motley Fool Hidden Gems! Jeff Hwang can be reached at [email protected].
