Information leaks break deals

Wednesday February 16, 2011
Information leaks break deals
By RISEN JAYASEELAN
risen@thestar.com.my

Target firms’ shares appear to be heavily traded before announcement

PETALING JAYA: Information leaks from financial institutions that had been approached to fund takeovers have led to excessive speculation in the shares of listed companies slated to be taken over, sources said.

Banks are typically approached to provide part of the financing to parties wanting to take over companies.

“While there are many sources of information leaks, it is very likely that banks approached for funding are one source (of the leaks) judging from the timing and volume of shares traded,” said one deal maker, who declined to be quoted or to mention any names of target companies he was referring to.

Said another private equity specialist when asked about the possibility of leaks from the banks: “It does seem the case and raises questions over the ethics of these institutions.”

A look at some takeover deals in the last six months does indicate that target companies' shares are heavily traded before the takeover deals are announced.

The speculation has sometimes worked against parties doing the buyout of the listed companies as the target companies' share-price spike, due to the speculation, has lessened the premium amount the buyer is offering to pay.

Consider some recent cases. MTD Capital Bhd announced on Dec 20, 2010 that its major shareholders led by group executive chairman, Datuk Nik Hussain Abdul Rahman, made an offer for all the shares in the company for RM9.50 a share.

But in a matter of two weeks leading up to the announcement, MTD's share price spiked from RM7.05 to close at RM8.90 before the announcement was made, hitting its all-time high at the time.

The offerors have since raised their offer to buy the assets of MTD to a price that works out to RM11 per MTD share.

Similarly, Latexx Partners Bhd said on Jan 31, 2011 that it had received an offer for its assets and liabilities from two private equity firms for RM852mil, which translated to an offer of RM3.10 per Latexx share.

However, Latexx began to be heavily traded a week before the announcement, from Jan 24, when its share price was hovering around RM2.44. Latexx shares hit a high of RM2.90 on the day just before the takeover announcement was made.

This meant the offer price of RM3.10 only represented a 10.7% premium to the last traded price. The offer price, however, is 18% above Latexx's one-month volume-weighted average price of RM2.63.

Both deals have also been caught under the new rule change by the regulator that requires a higher number of shareholders to approve the sale of their companies' assets.

The Securities Commission and Bursa Malaysia have raised the minimum shareholder approval threshold for takeovers via assets and liabilities to 75% from the previous simple majority minimum.