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Suspect Trading Precedes Many Top U.S. Mergers: NYT

Sat Aug 26, 6:39 PM ET

NEW YORK (Reuters) - The securities of 41 percent of companies that received buyout bids in the last year showed abnormal and suspicious trading in the days and weeks before the deals became public, the New York Times reported in its Sunday edition, quoting a study of the nation's biggest mergers.

The study, conducted for the newspaper by Measuredmarkets Inc., an analytical research firm in Toronto, examined mergers with a value of $1 billion or more announced in the 12-month period ending in early July.

It analyzed the price, total shares traded and the number of individual trades in each stock during the weeks leading up to the announcement, and looked for large deviations from trading patterns going back as far as four years.

Of the 90 big mergers in the period, it found that shares of 37 target companies exhibited abnormal trading in the days and weeks before the deals were disclosed, and that for those who bought shares during the periods of unusual trading, quick gains of as much as 40 percent were possible.

Trading on inside information about an imminent merger is illegal

INSIDER TRADING?

Measuredmarket founder Christopher Thomas, a former analyst and stockbroker, told the Times that the analysis led to the conclusion that the unusual activities most likely indicated insider trading.

The Times noted that while it's always possible that a company's stock could move due to developments in a particular industry or business sector or because a prominent newsletter, columnist or blogger writes something that might prompt investors to act, with the companies that were analyzed no such influences seemed to be in play.

The companies were not the subject of widely dispersed merger buzz during the periods of abnormal trading, nor did they make any announcements that would seem to explain the moves, it said.

But the Times' analysis did find that in a handful of the mergers, significant progress toward a deal was being made on the days unusual trading occurred. In one example, on the day that four bidders were putting together buyout offers for Amegy Bancorp, a Houston bank company, trading in its stock quadrupled

The Securities and Exchange Commission, which regulates mergers and monitors insider trading, would not comment on the study, the Times said, but did hold that the surveillance techniques of self-regulatory organizations like the New York Stock Exchange were more sophisticated than Measuredmarkets' system

SEC 'COGNIZANT'

Officials from the nation's top securities regulators met on August 18 to discuss emerging trends in insider trading, the Times said, citing Joseph Cella, chief of the office of market surveillance at the SEC. "We are certainly cognizant of the uptick in merger-and-acquisition activity," it quoted him as saying.

The Times reported that the companies identified by Measuredmarkets represented many industries and included Amegy Bancorp, the subject of a $1.7 billion takeover announced last September by Zions Bancorp (Nasdaq:ZION - news), the large Utah bank; CarrAmerica Realty (NYSE:CRE - news), a real estate investment trust acquired for $5.6 billion by the private investment company Blackstone Group after a March announcement; Dex Media, a directory publisher whose $9.5 billion purchase by the R. H. Donnelley Corporation was disclosed in October; the IDX Systems Corporation, a health care systems company whose $1.2 billion acquisition by General Electric was announced in September; and Texas Regional Bancshares, which the Argentinian bank BBVA said it would acquire in June for nearly $2.2 billion.

In each of the five cases, the abnormal trading occurred during periods of significant behind-the-scenes progress in the mergers, as outlined by the companies themselves in regulatory filings long after the deals were struck, the Times said.

Officials at the companies said that they were "unaware" of unusual trading in advance of the deals and declined to speculate on reasons for the action, the Times said.