WASHINGTON-While Nextel Communications Inc. saw its stock price soar amid speculation the company could secure wireless licenses from bankrupt NextWave Telecom Inc., key company officials sold large chunks of stock.
Last November, even as its stock continued to climb in a meteoric rise that began in August, Nextel executives dumped company stock at prices between $95 and $100 per share. Heavy Nextel insider trading, resulting in multimillion dollar payoffs for Nextel managers, occurred between Nov. 11 and Nov. 18.
During that period, according to data compiled by Vickers Stock Research of Huntington, N.Y., and Nextel, Nextel Vice President and Chief Financial Officer Steven Shindler sold 110,000 shares, leaving him with 392,700 shares.
Vice President of Government Relations Robert Foosaner sold 120,000 shares, leaving him with 97,000 shares. Nextel Chairman Daniel Akerson sold 250,000 shares, leaving 2.95 million shares. Nextel President and Chief Operating Officer Timothy Donahue sold 200,000 shares, leaving 1.1 million shares. Thomas Sidman, vice president and general counsel, sold 100,000 shares, leaving him with 342,000.
Morgan O’Brien, vice chairman of Nextel’s board of directors, sold 90,000 shares during November. O’Brien has 632,000 shares remaining.
Just after the flurry of Nextel insider trading, Nextel stock hit a trading high of $117.39 on Nov. 24.
Why did Nextel officials sell company stock in mid-November, when some on Wall Street apparently were betting the firm would acquire NextWave’s licenses? Such a coup, it was predicted, would add 20 percent to 30 percent value to Nextel’s already booming stock.
“Above-market performance deserves good compensation,” said Paul Blalock, director of investor relations at Reston, Va.-based Nextel. Blalock said many newer Nextel managers, except Foosaner and O’Brien, had not sold much stock during the past three years and got the opportunity to do so in mid-November.
But if Wall Street believed Nextel would eventually get NextWave licenses, did not Nextel believe the same?
“We haven’t assumed more than 50 (percent) probability” of getting NextWave’s licenses, said Nextel’s Blalock.
While many Nasdaq stocks performed well in 1999 (up 85 percent as a whole for the year), Nextel stock began to rise significantly after Aug. 11, the day Nextel publicized it had an agreement with the Justice Department and Federal Communications Commission to pursue NextWave licenses. On Aug. 10, Nextel shares closed $46. A month later, shares rose to $72. By Nov. 10, Nextel had nearly doubled in value from its August level to $91.44. After hitting its high later that month, Nextel stock has receded to $90.06 on Dec. 17. It closed Friday at nearly $100.
Wall Street confidence in Nextel continued to grow after Nextel raised more than $6 billion in cash in the latter part of the year.
Nextel stock continued to rise after August, despite several key negative indicators that it would not get the NextWave spectrum.
At the time of the heavy insider trade by Nextel executives in mid-November, a federal bankruptcy court and a U.S. district court had ruled NextWave could keep its 63 licenses and emerge from bankruptcy in one piece. As such, NextWave would have to pay the FCC only $1 billion of the $4.7 billion it pledged in the 1996 spectrum auction.
In October, NextWave Chairman and Chief Executive Officer Allen Salmasi publicly stated he had no intention of selling the firm’s wireless licenses to Nextel.
By the time Congress adjourned in November, but before the Nov. 24 federal appeals court ruling that gave the FCC primary jurisdiction over NextWave licenses, Nextel had lost its bid to acquire NextWave’s licenses through legislation.
While the U.S. Court of Appeals for the Second Circuit’s ruling strongly favors the FCC, the decision did not necessarily ensure Nextel could secure NextWave licenses. Nextel management-by virtue of the hefty sale of stock in mid-November and its understanding of the legal and regulatory nuances of official Washington- seemed to understand the uncertainties associated with gaining control of NextWave’s licenses.
Even so, Nextel’s activities surrounding NextWave licenses appear to have given a big lift to Nextel’s stock on Wall Street that continues today.
After Nextel dropped its hostile bid for NextWave in late December, some on Wall Street remained convinced NextWave’s licenses were Nextel’s for the asking.
“With the funding this is going to take, only Nextel has a good chance of getting the spectrum. One way or the other, they’re going to get it,” Deutsche Banc Alex Brown analyst Chris Avery told investor.com.
Others are not so sure.
“They’ve got about a 50/50 chance of getting it [NextWave’s spectrum],” said Tim O’Neil, an analyst at SoundView Financial Group in Stamford, Conn. “It [Nextel’s acquisition of NextWave license] was never part of our analysis.”
O’Neil said he does not believe other analysts explicitly factored NextWave licenses into the Nextel equation either.
In addition to the strong bull run by Nasdaq firms, Nextel’s Blalock said nationwide coverage and the firm’s strong financial fundamentals (despite $8.4 billion of debt) have contributed to the big jump in Nextel stock.
