Level 3 Communications Inc. (Nasdaq: LVLT) president Kevin O’Hara looks to have had a jolly time through the holidays, after filing to sell millions of dollars worth of stock in December.

According to six Securities and Exchange Commission (SEC) filings last month, O’Hara filed to sell more than 600,000 of his Level 3 shares, raking in over $3 million. A separate filing on December 16 reveals that O’Hara also intends to sell an additional 100,000 shares for an anticipated $8,562,500. There is no indication in the filings to explain the dramatic pricing discrepancy in the blocks he is selling. Level 3 shares were recently selling for about $5 per share.

While company executives sell and buy shares in their companies all the time, O’Hara’s bulk sale of Level 3 stock does raise some eyebrows among industry observers, who feel this could indicate that 2003 will be a tough year for the carrier.

On the surface, Level 3 seems to have a lot going for it. The carrier survived the 2002 telecom purge with about $1.3 billion in the bank, according to its third quarter earnings report (see Level 3 Reports Q3). Last summer, it also received a $500 million cash infusion from billionaire Warren Buffett and other investors (see Buffett Boosts Level 3). And on Christmas Eve, Saint Nick dropped the federal go-ahead for its acquisition of Genuity Inc.'s (Nasdaq: GENU) assets into its stocking (see Feds OK Level 3/Genuity Deal).

In trading yesterday the company’s stock ended at $4.86 a share – more than double its $2.15 52-week low.

So why is the Level 3’s president so eager to reduce his stake in the company? Level 3 did not answer numerous requests for comment, and O’Hara could not be reached by press time, so it’s hard to say. There could, of course, be many reasons why O’Hara would want to sell the shares.

“Level 3’s stock is up more than 50 percent,” says i2 Partners LLCanalyst Andrei Jezierski. “That’s a pretty good reason to sell.”

Other analysts, however, say it’s more likely that O’Hara’s selling his shares because he thinks the price is more than fair. “He’s selling now and not later, and he’s not just selling enough for his kids’ education,” says Network Conceptions LLC analyst Phil Jacobson. “It’s a significant amount of stock.”

“I think the equity value is still very high,” agrees Tim Horan, an analyst with CIBC World Markets. “It’s risky business… I think the stock is overvalued.”

Another possibility, of course, is that O’Hara, like many executives, has a plan in place to sell a set amount of shares at regular intervals, regardless of what the share price is.

For instance, it would appear that Level 3 vice chairman Douglas Bradbury has a preset plan to sell 100,000 shares at the end of each year. This year he made $580,000 on the sale, according to an SEC filing. Last November, the sale brought him $681,000, and in January 2001 he banked $4,068,700 from the same number of shares.

If O’Hara has a similar plan in place, however, it is not apparent from past SEC filings.

Interesting to note is that O’Hara started selling his stock a few weeks after Level 3 announced its intention to purchase Genuity’s assets for $242 million in cash (see Level 3 to Acquire Genuity Assets). The fact is significant, according to Network Conceptions' Jacobson. “Everybody expected that the Genuity deal was going to be a real kicker to the stock,” he says. “If I were into this kind of thing, and saw that Genuity didn’t bump [the stock], I would’ve shorted it too... [O’Hara] probably reached the realization that if Genuity is not going to raise the stock value, what is?”

The danger for Level 3 is that other company executives will follow O’Hara’s lead. "If you get a massive wave of selling in there, that thing is going to go to $2 in a second,” Jacobson says, pointing out that investors don't usually look too favorably upon executives who sell so much stock at once.

There might, of course, be yet other reasons for the sell-off. For one, O’Hara may be dumping his shares in the company because he’s looking for another job. “He doesn’t seem to fear any ramifications from [selling the stock],” says Jacobson.



— Eugénie Larson, Reporter, Light Reading