Thursday, September 28, 2006

Signs of Leaks, and Pre-Deal Profits, in Tech Mergers

Is the recent increase in deals in the technology sector being accompanied by a rise in inside tips?

A report from BernsteinResearch indicates that it may be. Bernstein analysts, examining the past 10 years, compared the five days preceding announcements of deals with the five days following them, and found that shares have bested the market in the pre-announcement period more often in the past two years than in the preceding eight. “This suggests wider availability of pre-deal information (intended and unintended),” according to the report.

From 1996 to 2003, seven percent of “outperformance” was captured before the announcement date, the report concluded. From 2004 to the present, that share has risen to 14 percent. The reasons for the difference are “unclear,” according to the report. One on hand, regulations have restricted information flows in recent years. But:

On the other hand, company use of the media, both intended and unintended, may be increasing with the goal of gaining some advantage in negotiations. In addition, the buy-side community, driven in part by the greater role of hedge funds, may be able to react faster to near-term trading opportunities.

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