August 11, 2017 / 4:16 AM / a year ago

BREAKINGVIEWS-M&A leaks further erode Asian markets’ credibility

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Quentin Webb

HONG KONG, Aug 11 (Reuters Breakingviews) - M&A giveaways are flooding the east. Suspicious trading ahead of announced mergers and acquisitions suggest India, South Korea, Japan and Hong Kong were the world’s leakiest major markets last year. That is embarrassing for a region that already lags in corporate governance. Officials can plug the dam - up to a point.

The study, released earlier this year by Intralinks and London’s Cass Business School, shows that for the first time since at least 2009, the Asia-Pacific Region was leakier than Europe or North America. In India, the market apparently got wind of roughly one in six deals ahead of time, though this was actually an improvement on 2015. Rates shot up dramatically in Japan and South Korea. This cannot be pinned on the looser standards that go with a surge in animal spirits: M&A volumes actually fell last year. And figures like these move around, like other financial league tables.

An unsanctioned release of confidential information can help flush out a better price. Last year this led to a median 38 percent premium on leaked deals, a 12-percentage point uplift on other M&A. So that is not all bad news, at least for target shareholders. But, in general, it is far better to invest in a market that offers a level playing field, not one disfigured by insider trading or selective disclosure of information.

A tougher official attitude – fines, prosecutions, and professional punishments - can quieten loose talk. The direction of travel is encouraging in Hong Kong, for example, where leaks have fallen from 14.6 percent to 10 percent in two years, as the watchdog has tightened up. India is also clamping down on market abuse and insider trading, the survey notes.

Yet the United States and Britain are seasoned M&A markets, policed by serious regulators. Even here, leaks averaged 9.8 percent and 7 percent respectively. That suggests it is hard to eliminate every possible menace, or to tilt the risk-reward tradeoff so far that it never makes sense for some insiders.

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- Unusual trading ahead of announced mergers and acquisitions suggest 9.7 percent of deals in the Asia-Pacific region were subject to leaks last year, compared to 8.5 percent in North America and 7.6 percent in Europe, the Middle East and Africa, according to a recent study by Intralinks and the M&A Research Centre at London’s Cass Business School.

- The four markets with the highest incidence of leaks were India, South Korea, Japan and Hong Kong, with 16.7 percent, 16.1 percent, 12 percent and 10 percent respectively. In Canada, by comparison, suspicious trading affected 4.3 percent of listed targets.

- This was the first time, in a dataset going back to 2009, that Asia-Pacific outranked EMEA and North America.

- For previous columns by the author, Reuters customers can click on


Editing by Katrina Hamlin and Una Galani

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