Bad news arrived today. FFD Financial (FFDF) announced that it is canceling its proposed reverse stock split. The stock dropped over 11 percent. Trent B. Troyer, the President and Chief Executive Officer of the Company commented that,
“Apparent attempts to arbitrage the premium being paid to shareholders being cashed out in the stock splits dramatically increased the capital costs of the stock splits beyond a figure the Board believes it is reasonable to spend. The increased capital that would be required to complete the stock splits and its impact on the Company’s financial condition are not in the best interests of the Company or its shareholders.”
I responded as soon as the news came out. I put in an order to sell my shares of FFDF for $15.00 and by the end of the day all 300 of my shares were sold. Instead of getting cashed out of my shares for $19.00 per share, I ended up having to sell for $15.00. This leaves me with a loss of just over $400 or just over an 8 percent loss.
Are there any lessons to be learned from this loss? FFD Financial seemed to be a decent company that is profitable and has a good dividend. The company did not appear to be over valued when looking at its P/E and book value. Maybe the company was too attractive given these metrics and given the potential profit from the proposed going private transaction. Trent Troyer did comment that many investors, like myself, tried to profit from this deal making it too expensive for the company to complete the reverse stock split.
This sounds like a reasonable arguement for why this going private transaction fell apart. However, Trent Troyer put up a red flag for us last week that I failed to notice until now. One week ago, on September 8, 2005, a Form 4 was filed indicating that Trent Troyer sold 2,743 shares for $17.27 each on September 6, 2005. I wish I hold sold my shares for $17.27 along side Mr. Troyer. Is it possible that Troyer knew that he might recommend canceling this going private transaction? Might selling his shares that have appreciated as a result of his proposed going private transaction just a week before the board meeting deciding against the going private transaction be considered unethical? I would sure think twice before negotiating a deal with Mr. Troyer in the future.
Lesson learned: If insiders start selling shares of the company that they are proposing to take private, sell your shares along with them.