In the days before a major deal is announced there can be a spike in trading as people seek to capitalise on the unreleased information. Australia leads the world in keeping these deals secret, according to research by Intralinks.
The study looked at trading around major announcements between 2009 and 2014, and found that, on average, just 3.5% of Australian deals leaked. That’s compared to 18.6% for Hong Kong – the country with the worst record, and 6.6% for the United States – in the middle.
These kinds of leaks, and the trading that follows can threaten market integrity and jeopardise the transactions, ASIC found in a report released last year.
ASIC did not find any evidence of selective disclosure of information, however the corporate watchdog did observe examples where companies “may have, either intentionally or inadvertently, disclosed confidential, market-sensitive information during an analyst briefing or similar forum.”
But the Intralinks report found other impacts from leaking deals that specifically hurt the companies involved – increased costs of takeovers. According to the research, the “takeover premium” – the difference between the price paid for a company and the “real value” – jumps once there is a leak.
And it is not an insignificant jump, the median takeover premium for deals that were leaked was 22% higher than the deals without a leak.
One possible reason for this jump is that leaked deals are more likely to draw a rival offer. So companies will be forced into bidding wars.
An example would be the bidding war over iiNet, although there is no evidence of any leaks in this situation.
Leaked deals can also take longer to execute, as they can bring negative regulatory and media attention.
On the whole, the Intralink report shows a downward trend in leaked deals since 2009. They chalk this up to three factors: regulatory enforcement, internal governance, and the risks to the transaction of leaks.
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