Thursday, February 20, 2003

Fallen Angel

Management shake-up at Concord EFS as stock slides.

Posted By on Thu, Feb 20, 2003 at 4:00 AM

In good and bad times over the past 10 years, Concord EFS was the brightest Memphis star in the stock market, making a lot of money for investors and fortunes for its top executives.

In the past year, however, Concord EFS has fallen hard. The stock price is down 70 percent, from $35 to $9.60 before bouncing back to $11. The company said this week it expects its earnings to flatten out for at least a year. And last week it announced management changes involving the two founders and the largest shareholder that could signal more turmoil.

Falling stocks are nothing unusual these days, but in the case of Concord EFS, investors can't say they weren't warned. They could have avoided the pain by simply doing what top management did last year: sell everything when the price was still around $30.

Concord EFS processes credit-card payments for retailers and banks. It keeps a low profile -- no flashy commercials, no catchy slogans, no sponsorships of arenas or sporting events. No problem. In flush times, stockbrokers and friendly analysts and reporters did the talking. Before the fall from $35, the stock was up 800 percent over a 10-year period.

Then, corporate insiders apparently decided the run was about to end. As the Flyer reported last August, Concord EFS executives and board members were big sellers of the stock last year just months before they touted a corporate buyback of 250 million shares in an attempt to prop up the stock price and bolster public confidence. Several shareholder lawsuits were filed after the stock price collapsed last summer.

The management changes announced last week appear aimed at separating corporate governance from corporate management, as is the fashion in the wake of Enron and WorldCom. In the reorganization, Richard Kiphart, a Concord director and major stockholder since 1997, was named chairman. Dan Palmer, co-founder of the company and former chairman, will serve as director and co-chief executive officer. Bond Isaacson, who joined the company in 2002, was named director and co-chief executive officer.

The part that had analysts and Internet message boards buzzing, however, concerned co-founder Edward Labry III. The company had previously announced that he would become CEO in May. As the late White House press secretary Ron Ziegler said, that statement is inoperative. Labry will instead serve as director and president.

"The management changes, in our view, signal greater internal turmoil than expected," said Goldman Sachs analyst Gregory Gould last week.

Kiphart, Palmer, and Labry sold most of their stock in 2001 and 2002 at $27 to $31 a share. They each netted approximately $41-$42 million on stock acquired via options for $1.14 to $1.98 a share, according to corporate financial disclosures.

Other executives, including the chief financial officer at the time, also sold big blocks of stock months ahead of the buyback announcement, by which time the share price had fallen more than 50 percent. Insider selling, which is publicly disclosed, is not always an indication of hard times ahead. Executives have bills and outside investments just like everyone else. But in this case, the signal was loud and clear. From 2001 to mid-2002, Concord EFS insiders sold 28 times, exercising 4,285,142 options and dumping 6,077,722 shares. During the same time frame, there was no insider buying whatsoever.

Since the buyback was announced, there has been some modest buying by top management. Labry, for example, bought 22,652 shares last September and November, according to public filings. But the buying has not been on the scale of the selling that went on a year ago.

The Mace David Howell investment scandal, which the local business press has finally decided is newsworthy, has topped $80 million, according to the unofficial tally by the Pulaski County Probate Court Clerk's Office.

Arkansas securities commissioner Michael Johnson told the Flyer this week his office has "an active investigation" even though Howell committed suicide last October as his investment scheme was collapsing.

"The cease-and-desist order we issued last October is all we can do against Howell and his estate," said Johnson. "But there may be other things that take place. Everybody that was in any way involved is potentially involved in the investigation."

Several Memphians were among the early leaders in the clubhouse in Probate Court filings, but their claims have since been topped by bigger claims by Dallas Cowboys owner Jerry Jones for $16 million and Robert Vogel of Little Rock for $11.7 million.

Memphis-based Regions/Morgan Keegan Trust is administrator of the estate.

Some people in Dyersburg won't be surprised if Mike Tyson flakes on his scheduled heavyweight fight at The Pyramid this week.

"I sort of predicted that," said attorney Robert Millar, who represents a group of Dyersburg investors who helped finance Tyson's bout with Lennox Lewis in Memphis last summer. "I don't think he ever had any intention of fighting again."

The Dyersburg investors are still scrapping over the spoils of the first fight. A lawsuit has been pending in Chancery Court in Dyer County for several months, but Millar said no trial has been scheduled and the discovery process continues.

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