Trading halts on takeover bids

[Trichter]

There's an ASX mining stock which imposed a trading halt this week on renewed takeover attempts by a Chinese company (read Chinese gov). Said company's primary assets are not in Australia, btw. Could someone with a little market knowledge describe reasons for and against a trading halt during takeover negotiations?

My basic understanding is that it would usually be profitable for the company to remain trading so that, as a takeover draws close, they can use the rising share price to negotiate a higher offer. Or is that too simple? What are the risks of remaining trading. Could it be to fulfil regulation requirements?

 

[Big A.D.]

My basic understanding is that it would usually be profitable for the company to remain trading so that, as a takeover draws close, they can use the rising share price to negotiate a higher offer. Or is that too simple? What are the risks of remaining trading. Could it be to fulfil regulation requirements?

There's that and there's also the possibility that someone involved in the negotiations buying or selling stock with advance knowledge of whether the deal was going ahead or not. If that occurred, the insider would try to profit from their knowledge as much as possible and that could involve large trades that could well affect the share price.

 

[Trichter]

My basic understanding is that it would usually be profitable for the company to remain trading so that, as a takeover draws close, they can use the rising share price to negotiate a higher offer. Or is that too simple? What are the risks of remaining trading. Could it be to fulfil regulation requirements?

There's that and there's also the possibility that someone involved in the negotiations buying or selling stock with advance knowledge of whether the deal was going ahead or not. If that occurred, the insider would try to profit from their knowledge as much as possible and that could involve large trades that could well affect the share price.

Right, so what you're saying seems to suggest that the trading halt may be to negate possibility of insider trading (or perceived insider trading by regulators)?

I should say that the trading halt was ostensibly in response to the media speculation about the parent company (complex deal), with the halt to continue until an announcement is made.

 

[THUCYDIDES79]

Good Question!

To make the Free Market operate more efficiently is the answer.

 

[Big A.D.]

My basic understanding is that it would usually be profitable for the company to remain trading so that, as a takeover draws close, they can use the rising share price to negotiate a higher offer. Or is that too simple? What are the risks of remaining trading. Could it be to fulfil regulation requirements?

There's that and there's also the possibility that someone involved in the negotiations buying or selling stock with advance knowledge of whether the deal was going ahead or not. If that occurred, the insider would try to profit from their knowledge as much as possible and that could involve large trades that could well affect the share price.

Right, so what you're saying seems to suggest that the trading halt may be to negate possibility of insider trading (or perceived insider trading by regulators)?

In a nutshell, yes.

Any takeover is obviously going to have a big effect on a company's business and the people who own shares in that company have the right to be informed about those effects at the same time as everyone else is.

Put it this way, you'd be really pissed if a company director dumped all their shares before telling you that a takeover deal wasn't going ahead.

 

[Trichter]

In a nutshell, yes.

Any takeover is obviously going to have a big effect on a company's business and the people who own shares in that company have the right to be informed about those effects at the same time as everyone else is.

Put it this way, you'd be really pissed if a company director dumped all their shares before telling you that a takeover deal wasn't going ahead.

Okay, so it's a standard measure to avoid this problem, but are they required to by law, or simply obliged to in order to avoid any future possibility of insider trading investigation by the regulators? Afterall plenty of takeovers and mergers etc. go ahead without trading halts. So does the company weigh up these risks and make a judgement call?

 

[Scope]

are they required to by law, or simply obliged

Both The board of directors are required by law to serve in the best interest of shareholders.