First Citizens Dual Class Arbitrage – Insider Weekends

I was at a value investor conference in Vail, Colorado last week and the idea I decided to present was the regional bank First Citizens (FCNCA) that I discussed in our May 2023 Special Situations newsletter.  The central thesis was:

i) The regional bank received a sweetheart deal from the FDIC to acquire Silicon Valley Bank. They also partnered with the FDIC coming out of the 2008-2009 Great Recession to buy troubled banks.

ii) The Holding family has a significant stake in the company (about 34% across class A and class B shares).

iii) Both the CEO and CFO were buying when the regional bank crisis started.

iv) The stock was trading at $1,007.18, well below my estimated tangible book value of $1,160.

v) The regional bank should be trading closer to 1.3 times tangible book value ($1,508) and most well managed banks often trade between 1.5 times and 2 times tangible book value.

Since I wrote about the company, the stock went up 20% and now trades at $1,208.38 or just above my estimated tangible book value. I still believe there is significant upside to the stock and it was encouraging to see that the CEO Frank Holding, Jr. was buying again last week.

However when I took a closer look at his form 4 filing, it was interesting to see that it was not an outright purchase like he did in March 2023. He decided to sell the Nasdaq listed class A shares (FCNCA) and instead purchased the cheaper class B shares (FCNCB) that trade on the pink sheets.

Besides the fact that the class B shares trade at lower daily volumes, the other key difference between these classes of shares is that the class B shares entitle holders to 16 votes compared to class A shares that only entitle holders to one vote per share. Under normal circumstances, a class of shares that entitle investors to more votes, usually trade at a premium to common shares that only have one vote. You can see this in action with Zillow where class C shares (Z) trade at a premium to class A shares (ZG). The only reason I can think of for the inversion in First Citizens is because class B shares trade on the pink sheets and there are only a few hundred shares that might trade each day or even less.

Unless you need to build a sizable position and very quickly, the class B shares at $1,050 are still trading below my estimate of tangible book value and are a bargain.

For further research on First Citizens, check out my writeup on the company in the May 2023 Special Situations newsletter (pages 3 to 7) and this June 7 Business Breakdowns podcast where Bill Nygren and Alex Fitch or Oakmark Funds discuss their First Citizens investment. While I have a $1,500 price target for the company, they are even more optimistic and think it should trade closer to $2,000.

Welcome to edition 687 of Insider Weekends. Insider buying declined significantly last week with insiders purchasing $24.04 million of stock compared to $72.87 million in the week prior. Selling on the other hand increased to $1.8 billion compared to $1.51 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio for last week went up to 74.99. In other words, insiders sold almost 75 times as much stock as they purchased. This week, the Sell/Buy ratio was unfavorable, compared to the prior week when the ratio stood at 20.75.

Notable Insider Buys:

1. Asana, Inc. (ASAN): $22.53

President, CEO, & Chair Dustin A. Moskovitz acquired 320,000 shares of this work management platform, paying $23.59 per share for a total amount of $7.55 million. Mr. Moskovitz increased his stake by 0.81% to 39,592,803 shares with this purchase.

You can view the list of recent insider transactions for Asana, Inc. here.

2. First Citizens BancShares, Inc. (FCNCA): $1,208.38

Chairman and CEO Frank B. Holding Jr. acquired 3,700 shares of this regional bank, paying $1,233.13 per share for a total amount of $4.56 million. As discussed above, he was selling class A shares to acquire class B shares.

You can view the list of recent insider transactions for First Citizens BancShares, Inc. here.

3. Pebblebrook Hotel Trust (PEB): $12.91

Chairman and CEO Jon E. Bortz acquired 43,000 shares of this upscale hotel REIT, paying $12.76 per share for a total amount of $548,688. Mr. Bortz increased his stake by 3.83% to 1,165,102 shares with this purchase.

You can view the list of recent insider transactions for Pebblebrook Hotel Trust here.

4. Brown & Brown, Inc. (BRO): $66.43

Director Bronislaw Edmund Masojada acquired 4,000 shares of this insurance products and services company, paying $65.78 per share for a total amount of $263,120. These shares were purchased indirectly by an entity of which the reporting person’s spouse is sole shareholder.

You can view the list of recent insider transactions for Brown & Brown, Inc. here.

5. Vistra Corp. (VST): $25.1

Director Julie A. Lagacy acquired 10,000 shares of this integrated retail electricity and power generation company, paying $24.84 per share for a total amount of $248,400. Ms. Lagacy increased her stake by 144.45% to 16,923 shares with this purchase.

You can view the list of recent insider transactions for Vistra Corp. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Walmart Inc. (WMT): $155.46

Shares of Walmart were sold by 2 insiders:

• Director Robson S. Walton sold 1,657,000 shares for $155.59, generating $257.81 million from the sale. These shares were sold indirectly by a trust.
• President and CEO Douglas C. McMillon sold 9,708 shares for $155.04, generating $1.51 million from the sale.

You can view the list of recent insider transactions for Walmart Inc. here.

2. ZoomInfo Technologies Inc. (ZI): $23.99

Shares of ZoomInfo were sold by 2 insiders:

• Chief Executive Officer Henry Schuck sold 2,083,334 shares for $26.51, generating $55.23 million from the sale. 83,334 of these shares were sold indirectly by a trust.
• President, Chief Operating Officer Joseph Christopher Hays sold 30,000 shares for $26.49, generating $794,733 from the sale.

You can view the list of recent insider transactions for ZoomInfo Technologies Inc. here.

3. NVIDIA Corporation (NVDA): $422.09

Director Mark A. Stevens sold 118,602 shares of NVIDIA for $431.03, generating $51.12 million from the sale. These shares were sold indirectly by a trust.

You can view the list of recent insider transactions for NVIDIA Corporation here.

4. Airbnb, Inc. (ABNB): $124.73

Shares of Airbnb were sold by 2 insiders:

• Director Joseph Gebbia sold 166,667 shares for $125.38, generating $20.89 million from the sale. These shares were sold indirectly by a trust.
• Chief Technology Officer Aristotle N. Balogh sold 20,000 shares for $127.74, generating $2.55 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for Airbnb, Inc. here.

5. Adobe Inc. (ADBE): $484.72

Shares of Adobe were sold by 3 insiders:

• Chairman and CEO Shantanu Narayen sold 35,000 shares for $478.03, generating $16.73 million from the sale. These shares were sold indirectly by a trust.
• Director John E. Warnock sold 3,000 shares for $481.41, generating $1.44 million from the sale. These shares were sold indirectly by a trust.
• EVP, General Counsel & Secretary Dana Rao sold 2,600 shares for $480.21, generating $1.25 million from the sale.

You can view the list of recent insider transactions for Adobe Inc. here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer:  I hold a long position in HR. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.