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Perry Rod




09/18/11 at 6:29 AM CDT



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When Activision's Director Sells, Investors Should Pay Attention

Brian Kelly, Activision Inc.'s Co-Chairman, sold around 1.6 million worth of Activision options last week.  Kelly's timing for sales has actually been strong and even slightly better than CEO Robert Kotick over the years. He sold a higher percentage of his large stake of his shares near Activision's top price of around $17 in 2008. He has also been the top insider in terms of percentage held, above the popular CEO (his sales since 2008 are worth over 300 million). In this recent sale, half of the options he executed were expiring in 2015 and 2016. He is likely not desperate for cash. He sold for as low as $11.48 and the stock closed Friday at $12.14. His timing for the sale is suspect since it comes prior to the 4th quarter where nearly 70% of Activision's eps is supposed to come in, and prior to a following year which analysts expect 18% growth. The last time there was a sale this big, he and Kotick dumped at this exact same price two years ago. It was good timing since the stock has gone nowhere in two years while the market is up around 20 percent.  Kotick is apparently not dumping with him this time (unless his sales are to be reported on Monday), but that could be because Kotick wants to keep his job and the perks that come with being CEO. His standing with the board of directors will be higher with a comfortable insider position. Kotick's remaining shares are still only around 10-15 percent of of his peak position.

Insider sales are often under appreciated by the general market. If ATVI's top insider sells here when the stock is not even performing all that well, it tells me things aren't as rosy as analysts expect.  Internal projections may be weaker than what analysts expect. If they were strong, would Mr. Kelly be be selling at 15X eps and 13X future eps with $2.50 cash in the bank (or 10x future enterprise multiple)?  That does not makes no sense, especially for a guy who has made a fortune from trading this stock.

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