It's been a pleasant Friday for the S&P/ASX 200 Index (ASX: XJO) and most ASX 200 shares today. At the close of trading, the ASX 200 had gained 0.35% and was back above 7,740 points. But let's talk about what went on with the ResMed Inc (ASX: RMD) share price.
Resmed shares performed slightly better than the broader market. The ASX 200 healthcare stock closed 0.43% higher at $32.34 after rising even higher this morning to $32.71 a share, a gain worth just over 1.5% at the time.
This green day for Resmed came despite some potentially difficult news for investors to digest.
According to a United States Securities and Investments Commission (SEC) filing, ResMed CEO Michael J. Farrell has just sold a significant chunk of shares.
Remember, Resmed is a dual-listed share and has a home both on the ASX and the New York Stock Exchange under the ticker ResMed Inc (NYSE: RMD). The company's base is also in America, in the Californian city of San Diego.
This SEC filing shows that Farrell disposed of 14,683 Resmed shares on 7 May (US time) this week.
These sales were executed at an average share price of US$216.50. That means Farrell would have bagged a cool US$3,178,815, which is approximately $4.81 million in our local currency.
There was no explanation given for these Resmed share sales. However, the plot thickens when we examine another two transactions reported on the same day.
Why has the ResMed CEO been selling shares?
The filing also shows that Farrell acquired 14,683 shares on 7 May. So Farrell has apparently bought and then sold $4.81 million worth of Resmed shares on the same day.
Well, not quite. The acquisition price of these shares was listed as US$84.98 – a far cry from the US$216.50 selling price. This implies that these shares were converted from options that the CEO possessed.
It appears that Farrell's options were exercised and converted into ordinary Resmed shares, which were promptly sold.
Should investors be worried?
Well, that's up to them. All investors like to see their company's management teams align themselves financially with investors as much as possible. That means owning as many shares as they can. When CEOs and other senior management figures sell out of said shares, it can cause some understandable consternation.
However, it must also be remembered that most managers tend to try to follow the rules of good wealth management, which most would agree includes at least somewhat diversifying one's wealth. Unless you're Warren Buffett, having most of your net worth tied up in one stock investment is rarely a good idea.
This might be a case of Farrell doing just that when it comes to Resmed shares. Perhaps the CEO has a large tax bill coming up or wants to buy a new house.
Before investors follow Farrell and sell out of their shares (which doesn't appear to be happening anyway, judging by the recent share price performance), keep in mind that Farrell still owns a significant chunk of the company.
The SEC filing shows that the CEO retains 440,752 Resmed shares (presumably the NYSE-listed stock) even after this week's sale. Those would have a value of US$95.57 million today.
