Page 8 - Quarterly Q1-Q2 2018

QUARTERLY Q/1–Q/2 – 2018
TRANSACTION POWERHOUSE
Loose Lips Sink Ships - How to Control Inside Information in M&A Transactions
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Although confidentiality is crucial in any transaction negotiation, listed companies should pay extra attention to ensuring that
the people involved in the deal put a sock in their mouth. Should information on a potential transaction leak to the public too early, there is a risk that the planned transaction hits the rocks. Competing bidders may get interested and speculators, such as hedge funds, may try to drive the targets’ share price up or start bidding on the failure of the transaction.
Criminal charges related to unlawful disclosure and abuse of inside information certainly make their way into headlines. Information on an M&A transaction involving a listed company will often turn to inside information at some stage of the evolving transaction. To avoid information leakages threatening the deal and to prevent criminal prosecution, it is essential to effectively control access to inside information.
Mind Your Step
M&A transactions are lengthy processes involving several steps from the first internal discussion on a potential target to the closing of the transaction. At some stage of the process, the information on the transaction reaches the threshold of inside information triggering an obligation to make a decision on its disclosure. The directors face
the challenging task of determining when the information on the transaction actually turns into inside information. Both the probability and the size of the transaction affect whether the information
is likely to have a significant effect on the price of the company’s shares. Usually when the size of a transaction is substantial compared to the listed company, the information on the potential transaction amounts to inside information at a relatively early stage.
There are well established reasons why the directors should focus on determining the moment when information on a potential M&A transaction constitutes inside information. When this happens, a listed company must either disclose the inside information to the public or make a decision to
delay the disclosure. A company can delay the disclosure where it would be likely to prejudice their legitimate interests provided that this does not likely mislead the public and that confidentiality can be maintained. In practice, listed companies have a more or less permanent interest to delay the disclosure until there is certainty that the
deal will be entered into. Early disclosure could attract competing bidders and create incorrect expectations misleading the public.
“As a rule of thumb, listed companies should ensure that the information on an M&A transaction is regarded as inside information at an early stage of the M&A process.”