INSIDE TRACK: Higher One Holdings Leaders Sell Shares

Top executives at Higher One Holdings Inc. (ONE) are looking to reduce their stakes after more than a decade building up the financial-aid processing company.

In mid-May, nearly a year after the company went public, six insiders sold 667,616 shares valued at more than $10 million. They made the moves in accordance with stock-sale plans disclosed in March. However, the sales came with share prices more than 30% off their $21.97 peak in December, around the time a share lockup expired, and almost 20% below the mid-February price when an earnings blackout concluded.

These sales, conducted from May 9 through May 17, were made at prices averaging between $14.84 and $15.32.

"They missed the opportunity in December," said Ben Silverman, director of research at Insiderscore.com. By selling in May instead, "It's sort of like they've accepted this valuation. These guys aren't waiting for that [rebound] to happen."

Director Paul Biddelman, whose 500,000-share sale comprised the bulk of May's insider moves, said he wanted the market to "settle in" before he took action. "IPOs tend to be volatile and we didn't want to contribute to that volatility," said Biddelman, whose Hanseatic Corp. invested in Higher One in 2002. Biddelman said the market is now "settled into a trading range."

New Haven, Conn.-based Higher One, which disburses financial aid to students on behalf of colleges, offers checking accounts that allows families to pay school bills online, has grown rapidly as schools look to cut costs and more students receive loans and grants. The 11-year-old company boasts a strong new-customer pipeline, high client retention and increased opportunities for cross-selling new products.

Still, competition is heating up from companies such as SLM Corp. (SLM) and Blackboard Inc. (BBBB), and regulatory changes may pressure Higher One's fee structure.

For now, Wall Street analysts remain bullish on prospects for further growth. Seven of eight analysts that cover the stock giving it a buy rating or equivalent; the eighth recommends a sell. They have an average price target of $21.38, according to FactSet.

Higher One spokeswoman Shoba Lemoine said the insiders began their stock sales "to slowly diversify their holdings in measured installments over a multi-year period."

Lemoine said the insiders didn't begin to sell earlier because the IPO-related lockup expired on Dec. 13, at the beginning of an earnings blackout period. That blackout starts three weeks before the quarter ends, with sales reopening two days after results are reported. Fourth-quarter earnings were released Feb. 15.

Chief Operations Officer Miles Lasater, Chief Service Officer Case McGuane and Chief Sales Officer Robert Reach all entered 10b5-1 stock-sale plans in March, with sales allowed after the May 3 earnings report. Chief Executive Dean Hatton announced in March that he would exercise and sell a number of options before they expire, also beginning after the earnings release.

Directors Patrick McFadden and Biddelman had no such agreements this spring.

Hatton, McGuane and McFadden exercised options valued at 14 cents to 32 cents, and then sold the stock. The others sold stock outright.

According to the March securities filing, even if the 10b5-1 plans are maxed out, the insiders' net worth would remain concentrated in company stock. "The management team remains committed to the company's long-term success," the filing said.

Lasater's stock-sale plan provided for sales only when the stock traded above a certain price, according to the filing. The threshold at which the 10b5-1 plan can be triggered seems "pretty low," Silverman said, and not a great sign of confidence.

Michael Taiano, an analyst with Sandler O'Neill + Partners and the only one with a sell rating on Higher One, said the insiders' moves may be prescient. Competition, pricing pressure and a potential slowdown in financial aid awards threaten to slow down the company's meteoric run, he said. While client signings and revenue won't deteriorate immediately, Taiano fears company executives are too dismissive of potential challenges.

"This is more of a longer term structural breakdown," said Taiano, who has a $13 price target on the company.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com

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