Debate over Takeover Rules - Smith & Nephew
31 January 2011
There was renewed debate about the takeover rules this month, triggered by takeover rumours at Smith and Nephew. Bid rumours caused a 14% jump in the share price on the morning of Thursday, 10 January, following talk of a bid approach from Johnson & Johnson of the US. There was no response from S&N initially, prompting one top-20 investor in S&N to say:
“We are not being well served by the way boards are dealing with these situations, and we do not like companies sitting on this sort of information. We need to be told what is actually going on. I don’t care if it is disruptive to tell the market, if there is a serious approach we need to be told”.
Rule 2.2 of the Takeover Panel's rules says “an announcement is required ... when, following an approach to the offeree company, the offeree company is the subject of rumour and speculation or there is an untoward movement in its share price”. An untoward share movement could be as little as 5 per cent on a single day.
On Monday, 14 January, S&N clarified the situation by issuing a statement saying:
"Smith & Nephew has a long standing policy of not commenting on press speculation, unless there is a regulatory obligation to do so. However, exceptionally, Smith & Nephew wishes to clarify that it is not engaged in any discussions which could lead to a merger or a takeover involving the Company."
Generally, companies are advised not to comment on rumour and speculation - hence S&N's silence. If a rumour is true and the market is reacting, then the company must issue a holding statement - according to S&N's subsequent statement, this was not the case here. If a company wishes to deny a rumour that has affected the share price, it must do so by way of a regulated announcement as to do otherwise would amount to selective disclosure of inside information. This is what S&N did. Our view is that the only remaining question is whether S&N should have made the announcement sooner.
For more, see FT article:
http://www.ft.com/cms/s/0/03215918-1cf3-11e0-8c86-00144feab49a.html#ixzz1Cc1XcuWQ
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