Countrywide Insiders Get Heat For Sales Prior to Earnings Shift

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Countrywide Insiders Get Heat For Sales Prior to Earnings Shift

WALL STREET WEST

It never looks good when company executives sell off large chunks of stock just before lowering earnings guidance.

But that’s what happened at Countrywide Financial Corp., the Calabasas-based mortgage giant whose executives have insisted for years that diversification efforts, along with its huge servicing portfolio, would protect earnings from a slowdown in the refinancing market.

Since early December, President and Chief Operating Officer Stanford Kurland has sold more than 52,000 Countrywide shares, grossing just under $4 million. Meanwhile, David Sambol, executive managing director of mortgage banking and capital markets, has sold about half that amount.

Insider stock sales totaled nearly $7 million in December and nearly $2 million through Jan. 13, according to Thomson Financial.

Nearly all the sales came prior to a Jan. 12 press release announcing that earnings for 2003 will fall near the bottom end of its previous guidance of between $12 and $13.50 a share.

The company “tightened” its earnings range to between $12.30 and $12.45 a share, citing interest rate levels that limited the fourth quarter “recovery” of previous impairment charges assessed to its $600 billion mortgage-servicing rights portfolio.

After the statement, analysts tracked by Zacks Investment Research Inc. lowered their 2003 earnings estimates to $12.33 a share from $13.05.

“We are diligently executing our post-refinance boom preparedness strategy,” Kurland said in the release. “Successful management of the macro-hedge has delivered extraordinary operational and financial results for the company.”

Tara Rios, a spokeswoman for Countrywide, said the executives had to lock in their option sales in advance. She also noted that Countrywide’s stock was falling at the time the company filed its statements with the Securities and Exchange Commission.

The stock reached what was then a 52-week high of $81.22 on Dec. 8, right around the time the stock sales began. It then began drifting downward, bottoming at $69.02 on Jan. 12, the day the company issued its guidance.

Since then, the stock has roared back on news of falling interest rates. It hit a new 52-week high of $84.43 on Jan. 21.

The company plans to announce fourth quarter earnings on Jan. 27.

Kate Berry

Homestore Sale

Cendant Corp. has begun selling off its stake in online real estate information service Homestore Inc., signaling a possible end to the volatile two-year relationship.

In a filing with the Securities and Exchange Commission earlier this month, Cendant said it would sell 2.3 million Homestore shares. That comes on the heels of a sale of 4.4 million shares it handed off to a division of Citigroup last month for prices between $3.33 and $3.40 per share.

With the two sales, Cendant reduced its Homestore stake to 9.7 percent from 15.3 percent. The stake could be reduced further if Homestore exercises an option to buy back up to 7.3 million shares from Cendant.

Cendant spokesman Elliott Bloom declined comment on the sales.

Homestore spokeswoman Erin Campbell declined comment on either Cendant’s sales or whether Homestore would exercise its option. “(Cendant) is an outside shareholder and we can’t comment on their moves,” Campbell said.

Cendant, franchisor of the Coldwell Banker, Century 21 and ERA residential realty brands, invested in the Westlake Village-based company 2 1/2 years ago through the sale of its partially owned Move.com venture to Homestore for $750 million in restricted stock. But the deal soured later in 2001 when Homestore revealed accounting problems related to inappropriately booked ad revenues that forced it to restate $122 million in revenues.

With the shares tanking at the time, Cendant which was stuck with the now unsaleable shares threatened Homestore with a lawsuit for misrepresentation. Cendant was also named as a defendant in a class-action lawsuit against Homestore; it was accused of knowingly getting involved in false ad-barter deals (charges against Cendant were dismissed in March).

In August, the two companies reached a settlement in which Homestore would register Cendant’s stake, allowing it to sell shares on the open market.

Meanwhile Homestore, which had to take a $12 million impairment charge and lost $6 million in revenue from canceled contracts with Cendant, has been able to rebuild its credibility.

The stock returned to the Nasdaq National Market on Jan. 2, after a year on the Smallcap market. The shares hit a 52-week high of $5.58 each on Jan. 15. As of Jan. 21, the shares closed at $5.27.

RiShawn Biddle

Bets Off

Youbet.com Inc. appears to have ended a four-month legal tussle with its largest outside investor, Rupert Murdoch-controlled Gemstar-TV Guide International Inc.

In a filing with the Securities and Exchange Commission, the Woodland Hills-based online betting firm reported that it reached a tentative settlement with Gemstar, which had sued Youbet in Delaware Chancery Court in September over two proposed proxy measures.

The settlement came days prior to Youbet’s planned annual meeting, which was set for Jan. 23. The meeting had been scheduled for September until a judge awarded Gemstar a preliminary injunction to halt it. The two measures remain on the latest version of the proxy, which was issued in November.

Gemstar, which holds warrants convertible into a 51 percent stake in Youbet, had claimed that the shareholder proposals were “blatant attempts” to keep Gemstar from exercising its voting rights. One proposal, for instance, would create a 67 percent supermajority voting requirement for any amendments to Youbet’s charter.

Calls placed to officials of both companies seeking details of the tentative settlement were not returned.

Hollywood-based Gemstar gained its stake in Youbet as part of a two-year-old agreement. Gemstar’s TVG cable network, which carries horse races, granted Youbet a license to broadcast the races and accept wagering over the Internet. In turn, Youbet granted Gemstar two warrants equal to a 51 percent stake (it currently owns 14 percent of the company).

The warrants are exercisable at a price of $2.50 each. That gives them value, since Youbet’s shares closed at $3.14 on Jan. 21, more than double the $1.36 at the time the deal was signed.

Gemstar alleged that Youbet proposed the measures to protect the interests of its executives, including co-founder and Vice Chairman David Marshall, who controls a 25 percent stake.

RiShawn Biddle

CORRECTION

The Jan. 26 Wall Street West article above, “Countrywide Insiders Get Heat for Sales Prior to Earnings Shift” left out an important detail of stock sales made by company executives Stanford Kurland and David Sambol. The executives had no say in the timing of the sales, which were carried out under an incremental stock sale program, called a 10b5-1 trading plan, set up several months earlier.

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The Business Journal strives to cover the news accurately and fairly. It is our policy to correct significant errors of fact and misleading statements. Please write to Editor, Los Angeles Business Journal, 5700 Wilshire Blvd. #170, Los Angeles, CA 90036, or email [email protected].

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