INSIDER BAROMETER

Business Leaders Bulk up on Company Stock

StefanOschmann-Bloomberg
Stefan Oschmann, the new CEO of Merck, recently bought millions in his own company's shares, a vote of confidence that some analysts see as a sign the market may be turning.
  • Why it matters

    Why it matters

    After a rough start to 2016, one expert interprets the recent big transactions by executives as a signal of optimism for markets.

  • Facts

    Facts

    • New Bayer CEO Werner Baumann and other board members recently bought €1.7 million ($1.9 million) in their company’s stock.
    • Top people at Merck recently bought €1.2 million in shares at the pharmaceutical group.
    • The major shareholder of health-care group Rhön-Klinikum increased its holdings by more than 20 percent.
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    Audio

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It’s quite the rarity: The past few weeks have seen three spectacular million-euro stock purchases by insiders at big German companies.

The votes of confidence – by top executives at Bayer and Merck and a major shareholder of health-care group Rhön-Klinikum – could be a sign that Germany’s struggling stock market might be on the mend after a rough start to the year.

“Such transactions are rare and a sign that members of management and supervisory boards see favorable investment opportunities in the stocks of their own companies,” said Olaf Stotz, a professor at Frankfurt School of Finance & Management.

What’s striking is that two of the recent transactions involved firms on the blue-chip DAX index of Germany’s 30 leading companies, an index which has fallen about 7 percent over the last six months, though it has recovered some of late. They also come at a time when many investors are wary of political developments in Europe that could push stocks down further.

Top executives, it seems, are trying to blow against the negative wind.

The amounts bought pale in comparison to the overall size of the stock market. But Mr. Stotz, who has studied such insider transactions for 13 years, interpreted the recent big transactions as good news for the markets overall.

“If you go by the insiders,” he said, “a marked decline in prices on the German stock market in the near future is rather unlikely — despite uncertainties, such as the vote later this month on the British staying in or leaving the European Union.”

“If you go by the insiders, a marked decline in prices on the German stock market in the near future is rather unlikely.”

Olaf Stotz, professor at Frankfurt School of Finance & Management

Pharmaceutical and chemical giant Bayer caused the biggest sensation: New Chief Executive Werner Baumann, along with three other managing board members and one from the supervisory board, bought €1.7 million, or about $1.9 million, in their own company’s stock.

With the big buy, Bayer’s leadership sent a message of confidence in the group’s controversial planned takeover of U.S.-based Monsanto, the world leader in farm chemicals and seeds. Although Monsanto rejected the opening €55 billion bid as too low, it showed itself open to negotiations.

Bayer stock has plunged about 10 percent since the first rumors of the takeover plans. Analysts, however, are more optimistic than the vast majority of stockholders. Many analysts still recommend buying Bayer shares.

It’s a similar story with German pharmaceutical group Merck, where top executives recently bought about €1.2 million of their own stock.

Like with Bayer, much of the purchase was done by Merck’s new chief executive officer, Stefan Oschmann, though outgoing executives Karl-Ludwig Kley and Bernd Reckmann also bought a fair amount.

 

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Also like Bayer, Merck has faced some investor ire over a recent acquisition. The Darmstadt-based company took over the U.S. supplier of laboratory chemicals and biotechnology, Sigma Aldrich, in 2014.

Analysts, however, see at least some upward potential in the stock. Bankers at Commerzbank say Merck stock is “moderately valued” for the industry and argued the takeover is already starting to bear fruit.

“Merck grew into a new dimension” with the deal, said the experts at Commerzbank Wealth Management in a research note. “Merck’s numbers for the first quarter are already an indication that the integration is proceeding quickly and the takeover made sense, both strategically as well as financially.”

By far the largest of the three insider purchases was close to €4.3 million at Rhön-Klinikum, the German hospital and clinic cooperative.

The health-care group’s major shareholder, B. Braun Melsungen, increased its holdings by more than 20 percent. The medical and pharmaceutical device company called the move a long-term strategic investment. The company said it might even consider further increases in its holdings in Rhön-Klinikum.

There have also been smaller deals.

Every two weeks, Handelsblatt publishes the “Insider Barometer,” based on company management share transactions, as calculated by the FIFAM Research Institute for Asset Management and Commerzbank Wealth Management. It most recently rose only slightly to 150 points.

Mr. Stotz of the Frankfurt School of Finance & Management, said the barometer’s rise could have been higher, except that it excludes purchases above €1 million. That means the three major transactions of the past few weeks were left out.

It hasn’t only been one-way buying traffic, however. There were also a number of large insider sales.

They included Jens Schumann, a member of the supervisory board at the online lottery holding company Zeal Network, who sold his shares on a large scale. The company that was formerly Tipp 24 had most recently revised its earnings forecast downwards.

And at Vonovia, Germany’s largest real-estate firm, the wife of Stefan Kirsten, its chief financial officer, parted with many shares and raised some eyebrows.

Mr. Stotz sees the makings of a trend in the real-estate industry: “In the past months, there have been more sales of real estate stocks by insiders, after they previously purchased a lot of shares,” he said.

And so while there may be some cautious optimism in the overall stock market, Germany’s booming real-estate sector may be showing signs of concern.

 

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Andrea Cünnen covers bonds and financial markets for Handelsblatt out of Frankfurt. To contact the author: cuennen@handelsblatt.com

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