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Best of Liz Benston

Gaming Guru

Liz Benston

Harrah's, Mandalay Execs Unload Shares

4 November 2003

LAS VEGAS --Gaming officials at Harrah's Entertainment Inc. and Mandalay Resort Group unloaded shares worth millions of dollars last month, securities filings show. Still, executives at both companies hold millions of options.

Harrah's Chairman Phil Satre sold 287,500 shares during the last two weeks of October through the exercise of options, according to a filing with the Securities and Exchange Commission last week. The average sale price was $43.30 per share. The shares were sold for about $12.5 million. Satre netted roughly $7.4 million from the sale after factoring in the cost of the options. Satre has about 1.1 million options remaining after exercising some options in the past year.

The sale was intended to diversify Satre's holdings, Harrah's spokesman David Strow said.

"When Phil retired as CEO in January he said he intended to diversify his investment portfolio," Strow said Monday. Chief Operating Officer Gary Loveman succeeded Satre as CEO Jan. 1.

Satre still owns 70,000 shares of stock or a .06 percent stake in the company assuming 110.7 million shares outstanding as of Sept. 30. He also owns 247 shares through his 401(k) plan and 314,278 shares through a family trust. His wife owns 2,383 shares.

The sale hasn't generated any particular interest from analysts.

By contrast, analysts have been buzzing about Mandalay Resort Group, where Chairman, Chief Executive and Chief Operating Officer Michael Ensign and Vice Chairman William Richardson began to unload large blocks of shares in June.

Richardson sold all of his remaining stock in the company, or roughly 5 million shares, from June 17 through Oct. 10. The sales yielded about $250 million in gross proceeds. Ensign sold roughly the same number of shares at about the same time, retaining about 20,000 shares of stock.

The sales accelerated last month, when each sold roughly 2.6 million shares and topped insider selling activity for publicly-traded companies in the United States.

The proceeds from the sales don't factor in the cost of the options that were initially acquired.

Both Ensign and Richardson had about 2.4 million options remaining to be exercised as of the company's fiscal year-end on Jan. 31, 2003, according to the company's most recent proxy statement in May.

Each exercised about 1.9 million options from June through October, leaving each with more than 500,000 options, SEC filings show.

Executives and directors are prohibited from selling or buying stock two weeks from the close of the company's fiscal quarter. Mandalay's fiscal third quarter ended Oct. 31.

The sales have confounded analysts, who say they are anticipating the company's third fiscal quarter results for some discussion of the subject.

The company hasn't indicated to analysts or investors why Richardson and Ensign have sold shares, though it has denied speculation that either is leaving the company. Company representatives could not be reached for comment Monday on the sales.

"Speculation that this sale of stock is a signal of a shift or change in the management of this corporation is misguided and uninformed," John Marz said in a statement last month. "The team that has brought Mandalay Resort Group to its success and diversity in recent years will remain intact and will continue to guide this company to future business achievement in the resort casino industry."

During investor meetings held after the sales last month, Mandalay Chief Financial Officer Glenn Schaeffer said he couldn't speak for the insiders but said investors shouldn't "have suspicions" about whatever may have motivated them to sell, meeting host and gaming analyst Joe Greff of Fulcrum Global Partners wrote in a research note to investors last month. Schaeffer told investors the sales and communication surrounding the selloff could have been better handled, however, the note said.

Richardson has served as vice chairman of Mandalay's board since June 18, 1998, and has served on the board since June 1, 1995. Ensign has served as chairman and chief executive since Jan. 16, 1998, and was chief operating officer since June 1, 1995.

Ensign eschews the public role of CEO, instead exerting a quiet, behind-the-scenes control over the company, company representatives say. Schaeffer instead serves as the public face of Mandalay Resort Group, hosting conference calls and public events and speaking with analysts.

The selloff "has created some head-scratching for investors" who have expressed concerns about the leadership of the company, Greff said Monday.

Recently lowered capital gains taxes likely played a role in the sales, he said.

The vast majority of the sales involved shares held directly rather than selling stock obtained through options, the opposite of what investors might have expected from the company, he said.

Selling stock obtained through options instead would have allowed insiders to retain shares that would benefit from the company's recently instituted cash dividend plan, he added. Deutche Bank Securities gaming analyst Marc Falcone said he also was surprised at the magnitude of the selling.

Sales can often be attributed to a variety of factors such as the capital gains taxes, share price appreciation and the desire to diversify personal investments, Falcone said Monday.

"The stock has had a very strong run. I haven't seen this price in quite a while," he said. Mandalay shares rose about 18 percent to $39 or so over the period of insider selling. The stock has jumped about 26 percent since January and about 33 percent from a year ago to $39.60 Monday.

The company hasn't been as active in share repurchases lately, killing earlier speculation that the company might be aiming to go private, Greff said. Insiders probably wouldn't be selling shares in that case, he said.

Harrah's, Mandalay Execs Unload Shares is republished from