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Lukas Walton offloads stake in First Solar shares

First Solar (NASDAQ:FSLR) announces secondary offering of 8.65M common shares from Lukas T. Walton, or approximately 8.2%, of the Company’s outstanding common stock.

Why would Lukas Walton do this? Telling the world you are selling 8.2% of a company's outstanding stock seems like it will cause a market crash (because there's more shares being traded now, plus people will speculate that you think FSLR's prospects are not good), which is indeed what happened, FSLR crashed by over 10% yesterday. If the stock price crashes, then Lukas Walton also gets less money from the sale. It seems to his advantage to simply sell on the open market without fanfare.

What is the point of telling the world that you are selling such a substantial position?

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    Investopedia: Sunshine Trade
    – Flux
    Sep 18, 2020 at 4:42
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    It's a public company, so the sale won't be a secret. Why not tell people ahead of time so that you can manage your own narrative?
    – user91988
    Sep 18, 2020 at 15:09
  • "It seems to his advantage to simply sell on the open market without fanfare" — or in dark pools.
    – Flux
    Sep 18, 2020 at 23:48

4 Answers 4

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Short answer: so he does not surprise when he actually sells. In your link, quite a bit key information regarding the sale is missing. The full announcement by first solar can be found here. The key part is this:

Mr. Walton intends to use the proceeds from the sale of shares in the offering to provide funds for new impact investments across a variety of environmental and social causes. In addition to the shares to be sold in the offering, Mr. Walton intends to donate up to 8,649,074 additional shares over time to various charitable organizations focused on urgent issues facing society and the environment, including relief efforts related to the COVID-19 pandemic.

Mr. Walton wants to invest big in social and environmental causes. He wants to fund that investment through funds currently bound in his ~20% stake in First Solar stock. It is clear that a sale of such magnitude would not go unnoticed and speculations would start, why someone is selling so much, others would follow and demand would freeze until the reasons are clear. Or it would take a long time to sell more or less unnoticed, and Mr. Walton wants to do good now (I assume, Corona aid does not make sense if you wait a year or two). So he puts his intention and more importantly his reasons to the public, so it is clear he is selling a fixed amount for reasons of social and environmental investment and additionally gifting the same amount (probably because it is just easier than selling the total). That way uncertainty, which stock markets hate like nothing else, is reduced, and he is advertising is philanthropic efforts.

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    In large part, to OP's question, he's specifically trying to counter speculation about why he's selling.
    – chrylis -cautiouslyoptimistic-
    Sep 18, 2020 at 16:14
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    I'm not sure if the SEC also has regulations surrounding disclosure of trades above a certain size? There are a lot of rules managing the circumstances of significant trade volumes. I'm sure at least some of them would apply to a transaction like what OP is describing.
    – J...
    Sep 18, 2020 at 19:17
  • This answer is unconvincing speculation, and it does not explain why Mr. Walton would bother to announce the sale before the fact instead of after. See @Jaquez's answer for a factual answer.
    – Myridium
    Sep 20, 2020 at 3:10
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    @Myridium You seem to assume he could just sell 8.2% of the total stock on the open market and people would only notice after the fact. He cannot. Even trying to put a significantly smaller amount on to the open market will immediately get noticed. Everyone will be talking about who is putting up so many stocks for sale and why well before he has sold anywhere close to 8.2%.
    – quarague
    Sep 20, 2020 at 6:52
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    It's not just the market impact. Because he owns >10% he is automatically a control person (affiliate). He would have to file Forms 4 for ANY change in stock ownership and is also limited by Form 144 requirements. Thus he is doing a secondary offering. This is more expensive with more detailed disclosure required. He is also doing a secondary with the minimum required to bring him below 5% so he will also no longer be required to file any forms like a 13/g. He can then sell as much or little as he desires without further filings or public notification requirements.
    – doug
    Sep 23, 2020 at 21:28
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As a large shareholder of First Solar (13.1% before the sale) Walton is considered an affiliate:

In the corporate securities and capital markets, executive officers, directors, large stockholders, subsidiaries, parent entities, and sister companies are affiliates of other companies.

As such, he is therefore required under SEC Rule 144 to report planned sales in advance:

  • Form 144 must be filed with the SEC when there's an order to sell a company's stock during any three-month period in which the sale exceeds 5,000 shares or units or has an aggregate sales price greater than $50,000.

  • The party filing Form 144 must have a bona fide intention to sell the securities within a reasonable time frame after filling.

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    He is not filing a 144. The volume he is selling goes beyond what is allowed under 144 so he is doing a secondary public offering. This requires disclosing a lot of information much like an IPO but with not as much required because the company is already public. You can pull the details at the SEC's Edgar database. Further, he is decreasing his ownership below 5% so he no longer has to file anything, like a 13G, in the future.
    – doug
    Sep 23, 2020 at 21:23
  • Thanks for the clarification. I was not aware of the upper limit on the 144 as it was not mentioned in any of the references I consulted. Good information and likely the real correct answer to the question.
    – Jaquez
    Sep 24, 2020 at 3:40
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SEC requirements aside, announcing the sale is to the seller's advantage because it helps keep the price a little higher.

If the owner of a large stake in a company were to sell their shares, simple supply and demand tell us dumping all those shares on the market will lower the price. But worse, seeing the price drop without explanation can spook some investors that others know something they don't, creating a viscous cycle and therefore further reducing the profit from the sale.

Announcing the sale helps counter this by giving the shareholder a chance to explain why they are selling. This means the associated drop in price is less likely to spook other investors, as well as signal to others it's not a good time to sell their own shares. It's also a chance to drum up demand for the sale, as bargain hunters will see this as a chance to invest in those shares while they are more available and (perhaps) cheaper.

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    I had trouble finding any information to support this, which is why I didn't include it in my answer but this appears to be related to the reasons that the SEC rule was created in the first place. Maintaining support for the current share price does not just benefit the divesting shareholder; it benefits all shareholders. Since it was instituted as part of the Depression era reforms, it was appears that it was intended to protect investors from the negative effects that large sales could have on their investments.
    – Jaquez
    Sep 19, 2020 at 20:17
  • I think you want to write "because it helps mitigate the fall in the price" (expected from simple supply-demand considerations). That a sale would raise the price would depend on other considerations. Bargain hunters would have to be pretty irrational to purchase at a higher price ;-) A situation where the price would rise is if the shares are very rarely traded and the sale is a rare event. I can't think of too many other cases.
    – PatrickT
    Sep 19, 2020 at 22:49
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Lukas Walton is selling a large amount of of his shares, approximately 8.2% of the outstanding shares, which are not registered, in First Solar through a secondary offering. This requires a registration and prospectus listing details such as who the underwriter is and disclosure requirements associated with such a secondary offering. Since the company is established and current on SEC filings and the company receives none of the proceeds, the additional detail required is minimal.

After the sale, Lukas will own 4.9% of First Solar which, absent controlling interest in other entities that also own shares, will remove the requirement that he file annual statements since it is below 5%.

Alternately, Lukas could have sold shares gradually using Form 144. However, there are limits, based on average share trading volume to such sales which would have required a considerable time to sell the large amount of shares he holds. This would have raised questions as to why such a large shareholder was selling qtys. of shares near the 144 limit each time he filed a 144. Further, the registered offering, with strong disclosure requirements by both the shareholder and company allows coordination with underwriters to sell large amounts of shares with minimal market impact.

Through this secondary offering, Lukas has sold these shares on Sept 21 per SEC filing:

Upon the satisfaction of the conditions set forth in the underwriting agreement entered into in connection with the Registered Sale (as described in Item 6 of this Amendment), the Reporting Person sold such shares at a net price of $68.50 per Share on September 21, 2020.

See filings here:

S-3 Registration filing 13D

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