Maybe these executives are right and anyone selling now would be foolish. At the same time, it is worth bearing in mind that the compensation packages of these men are tied to the company share price. Perhaps it pays to follow where the so-called smart money is going.
If things are good and only going to get better, why are two private equity firms choosing this moment to dispose of roughly a third of their remaining shareholding in a small refiner that is supposedly well-positioned to take advantage of these sorts of conditions?
ACON Investments and TPG Capital, the two private equity groups that control the general partner of Northern Tier Energy LP, a Minnesota oil refiner, are selling off part of their controlling stake in the firm this week, cashing out more than $250 million from their investment.
There's nothing sinister here; it is what private equity firms do. They buy assets, usually using a lot of debt, then sell for a profit.
Why do they sell? Perhaps because their financial wizardry has genuinely improved the asset or perhaps simply because market conditions are now more favorable than when they acquired the company in the first place.
Still, an insider selling out is usually a signal that the easy money has been made and that whatever profit that might be earned by holding out longer is not enough to offset the risk that market conditions get tougher.
The $250 million payout at Northern Tier represents a nice gain for ACON and TPG. Having paid $554 million to Marathon Petroleum for the St Paul Park, Minnesota refinery, along with some pipeline and marketing assets, in December 2010, the two investors are cashing out nicely after less than three years.
Original investors selling are not as bad. There can be many reasons. The most likely one is that they think they have found a better use of the funds than stick with NTI. This doesn't mean the NTI is not good. There are always better deals somewhere if one knows where they are.