April 3, 2012 Comments

The Dow was down 0.5% today and the Toronto index was down 1.5%. Our stocks picks were mostly down as well.

I have mentioned the secondary share offering of Constellation Software. This was a sale of shares by a major shareholder (OMERs private equity). Although it was offered under a prospectus filed by Constellation Software, the company received none of the money. No new shares were created. All that happened was that a large insider (OMERs) sold shares to the public.

That got me thinking; what was Constellation’s role in this? Why did Constellation have to file a prospectus and did the company incur any fees and was it reimbursed for its costs? So I emailed the company to ask and the CFO replied that the information I sought was in the prospectus. Sure enough, on page one it indicates that Constellation had fees of about $575,000 of which OMERs would reimburse $300,000. And I suspect that this does not include a lot of internal costs in terms of staff and executive time spent on this.

So, it’s interesting. A large inside holder wants to sell  a large block of stock and Constellation (meaning its other owners) gets to pay  much of the cost. And this is on top of the fact that last year OMERs effectively (as I understand it) forced the company to put itself up for sale. No doubt a lot of costs were incurred for that. AND, on top of that the sale by OMERs caused the share price to sink about 10% as they sold over 10% below the market price that prevailed just prior to their sale announcement. As someone who did not own shares, and who is interested in buying, I am okay with the price drop. As a continuing shareholder I would not be happy. And anyone who sold shares in the past couple of weeks, or probably the next period of time until the share price recovers, should not be too happy about this 10% price drop.

But I suspect this is all perfectly normal business. If I were more energetic about I might complain to “the authorities”. But I suspect I would be met by blank looks and arcane (at best) explanations. It’s probably not worth worrying about.