IPO stems insider stock sales - Houston - MSNBC.com

KBR disclosure curbs brisk trading activity by Halliburton CEO

By Jim Greer
Houston Business Journal
Updated: 7:00 p.m. ET Feb. 5, 2006


David Lesar made millions on insider stock sales over the past two months, but Halliburton Co. policy prevented the chairman and CEO from making millions more this week.

On Jan. 27, Lesar went public with the news that 20 percent of the energy service company's KBR unit was slated for an initial public offering.

On Jan. 26, he sold 75,000 shares of Halliburton at more than $73 per share for a gross of about $5.5 million.

Added to eight previous stock sales executed in December and January, Lesar cashed in just under 354,000 shares for about $24.3 million in an eight-week period (see chart).

The KBR public offering announcement lit an even bigger fire under an already hot Halliburton stock price.

At close of trading on Jan. 27, the stock had moved into the $79 range after closing near $75 on the previous day. On Jan. 30, the price topped $82 before settling near $81.

On Feb. 1, in midday trading, shares of Houston-based Halliburton changed hands around $81.31, or about 8.4 percent above the stock's closing price the day before Lesar announced plans to publicly spin off the longtime engineering and construction business formerly known as Kellogg Brown & Root.

At midday on Feb. 1, the price remained north of $81, about 8.4 percent above the closing price the day Lesar executed his most recent sale.

But Lesar personally couldn't cash in on the extra boost Halliburton shares got from the KBR IPO news on the following day. Company policy restricts insiders from cashing in on material information that hasn't been made public knowledge.

The rule closed the trading window on Jan. 27 and forced Lesar to leave millions of dollars on the table.

At the stock's Feb. 1 perch above $81, shedding the same 353,981 shares that were sold in December and January transactions would have delivered Lesar an extra $4.5 million or so pretax.

Specifics for investors
The potentially plumper payout remains purely hypothetical.

A Halliburton representative points to the company's "Code of Business Conduct: Use and Public Disclosure Of Material Nonpublic Information."

This stodgy-sounding corporate policy, which reflects U.S. Securities and Exchange Commission regulations, states that it is a violation of federal laws "for any person to buy or sell securities if he or she is in possession of material nonpublic information relating to those securities."

The KBR IPO details publicly disclosed by Lesar on Jan. 27 appear to fall into the "material nonpublic information" category.

Last year, Halliburton reported an intent to sell or spin off KBR, with an IPO as one possible option. Timing remained unclear.

The specific course of action for KBR wasn't announced until Lesar's Jan. 27 disclosure that Halliburton would pursue a KBR IPO filing.

Wall Street already expected that Halliburton would do an IPO instead of pursuing another option. But Lesar on Jan. 27 offered specifics that investors have been awaiting, according to Citigroup Investment Research analyst Geoff Kieburtz.

Immediately after filing a 10K, the annual report due by mid-March, Halliburton expects to file KBR IPO documents, Kieburtz adds.

So various details on the planned IPO, including proceeds Halliburton could receive, aren't likely to emerge until next month, at the earliest.

But today, "the substantial proceeds expected from the IPO are already fueling rumors" of future acquisitions that Halliburton will make, according to a Jan. 30 report from equity analyst David Rewcastle of Argus Research Co.

Even ahead of the KBR stock offering, Halliburton is awash in cash.

Argus Research on Jan. 30 raised the 2006 earnings per share projection for Halliburton by $1.05 to $5.25. At the same time, Argus unveiled a preliminary estimate that envisions Halliburton earning $6.55 per share for 2007.

Halliburton is the world's second-largest energy services company.

Late in the day on Jan. 26, Halliburton announced robust financial results for the fourth quarter and full year of 2005.

"The best (year) in our 86-year history," Lesar said in the Jan. 26 news release.

Halliburton's announcement of the banner year, including fourth-quarter earnings that beat analyst expectations, came out only hours after Lesar made the last of his most recent stock sales.

So the earnings news, like the KBR details, also had qualified as material nonpublic information. One more reason Lesar wouldn't have been able to cash in his stock at the new highs set this week.

Still, Lesar's selling of Halliburton shares at prices well below previous levels points up the fact that insiders aren't necessarily the best traders. Indeed. Lesar also shed stock in the oilfield services giant before December last year, again leaving millions of dollars on the table.

"His track record's actually quite bad," says Jonathan Moreland, editor of Insider Insights. "He sells and it goes up."

But Lesar still has ample ammunition for future trading.

According to a Jan. 26 filing with the Securities and Exchange Commission, Lesar still beneficially owns nearly 700,000 shares of Halliburton.