Jan 13, 2023

Wall Street Journal: Pauses in Insider Sales Offer Clues for M&A Activity

The Wall Street Journal recently reported on the phenomena of Cessation of Selling, a proprietary VerityData signal created when corporate insiders stop selling shares. The signal was a precursor to Amgen Inc.’s $28 billion bid for Horizon Therapeutics PLC in December.

“When insiders who are selling regularly stop … it can definitely be a green flag, playing into the idea of a company working on a possible deal,” said Ben Silverman, research director at Verity, to the Wall Street Journal.

Insider activity is an important data point for major hedge funds, the article reports.

Investors such as Third Point LLC, the activist hedge-fund manager headed by Dan Loeb, Senvest Management LLC, a New York-based firm overseeing about $3 billion in assets, and hedge-fund firm D1 Capital Partners LP are among those looking at insider share sales to help identify potential investments.

Tracking insider activity can sometimes dispel rumors and offer short ideas, too. In December, after Nutanix Inc. stock jumped following murmurs of interest from Hewlett Packard, at least four Nutanix insiders sold shares.

To Raj Vazirani, who runs New York-based Vazirani Asset Management LLC, this showed that Nutanix wasn’t in takeover talks, since the executives could have been barred from selling otherwise. He bet the stock price would fall, a wager that paid off after HPE said there were no talks on Dec. 23 and Nutanix shares fell about 8%.

“There is no way I would have bet against the deal absent the insider sale,” Mr. Vazirani said. “That was the main reason for initiating that short position, because that was a screaming signal.”

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