Increased vigilance among regulators and a subdued market for takeovers have deterred investment bankers from leaking information about deals, according to an international study published on Wednesday.
Strategic leaks designed to flush out rival bids have fallen in the wake of the global financial crisis as the likelihood of drumming up another offer has declined, according to the study by London’s Cass Business School.
“In the pre-Lehman period, the gain [of leaking] was bigger than the pain. Now there is a finer balance,” said Philip Whitchelo, a former banker who is vice president of marketing at Intralinks, which commissioned the study.
“You have to take into account that you might not have the deal at all, plus you have regulators bearing down on you.”
The study scrutinized more than 4,000 deals between 2004 and 2012 for significant pre-announcement trading (SPAT) in the stock of the target company, which would indicate a possible leak.
It detected SPAT in 7 percent of bids globally between 2010 and 2012, down from 11 percent in 2008-9.
The study showed leaks were more common in Europe than in the United States, and were particularly prevalent in Britain, even though its financial watchdog had vowed to crack down on market abuse and stepped up arrests and prosecutions.
Intralinks is a provider of virtual data rooms used to share sensitive information between parties, and supplies those in the M&A market.
Regulators in Britain and the United States, the main centers for deals globally, have taken a tougher stance on leaks but detection will be more difficult when the number of deals picks up again, one of the study’s authors said.
“If we were to see a resurgence in M&A, more deals would mean there would be less ability for regulators to be vigilant on a deal-by-deal basis, and there would be more places to hide [leaks],” said Scott Moeller, director of Cass Business School’s M&A Research Center.
The annual market for takeovers has almost halved to around $2.5 trillion since the financial crisis broke out, according to Thomson Reuters data.
In Europe, the Middle East and Africa, 14 percent of bids displayed SPAT between 2004 and 2012, compared to 10 percent in the Asia-Pacific region and 7 percent in North America.
After peaking at 22 percent between 2004 and 2007, the number of leaks in Britain fell to 13 percent during 2010-2012.
Last April, Britain’s Financial Services Authority fined Ian Hannam, one of London’s most powerful investment bankers, 450,000 pounds for passing on inside information. Hannam is appealing that decision, and resigned from JPMorgan to focus on challenging the regulator.
Britain’s Takeover Panel also adopted tougher merger rules in 2011, including banning break fees, following an outcry over Kraft’s purchase of Cadbury. The Cadbury deal in 2010 sparked anger when Kraft reversed a promise to keep a plant open.
The United States takes a particularly tough line on leaks and insider dealing, dishing out large fines and long jail sentences.
SAC Capital Advisors, owned by hedge fund titan Steven Cohen, was last month told to pay $616 million to settle charges that it improperly traded in two stocks, in the largest ever insider trading settlement.
In a high profile case last year, Wall Street investor Rajat Gupta was sentenced to two years in prison and ordered to pay a $5 million fine for insider trading.
Gupta was convicted for leaking Goldman Sachs boardroom secrets to Raj Rajaratnam, a hedge fund manager targeted in a U.S. government crackdown on insider trading over the past four years.
The authors of the study said differences between the regulatory systems could partly explain the regional disparity in the number of leaks recorded, such as variations in deadlines by which a company must respond to a market rumor.
(Editing by Carmel Crimmins and Tom Pfeiffer)