Suspending share trading hurts investors
Who gains when share dealings are suspended? Not the shareholders if they cannot sell. And not the shareholders if the company calls off bid talks rather than suffer a suspension. Finally, the listing authorities have realised the folly of demanding a halt to trading.
International Power proved the point when news leaked of its talks to take over part of the business of France’s GDF Suez utility.
As the UK company was buying something bigger than its existing business – a reverse takeover – the UK Listings Authority demanded it make a statement to the market, giving shareholders the full financial details of the assets being acquired.
But International Power did not have such information – and GDF uses different accounting standards – so UKLA demanded a dealing suspension until the information was available.
The FTSE 100 company had no wish to suspend trading. Nevermind that halting dealing is associated with companies about to make a dire profits warning or call in administrators, it would have left shareholders unable to buy or sell, possibly for months while the information was pulled together.
So the directors made the immediate statement that UKLA demanded – but announced that the takeover talks were off.
They preferred to abandon the bid rather than face a freeze on dealings – even though that deprived its investors of the benefit. But having said the talks were off, the company was not allowed to resume them for several months – and that meant it could not ask GDF for the information it needed for announcing they had restarted.
UKLA has conceded the catch-22 it had created for companies and has applied some of the common sense more common at the flexibly pragmatic Takeover Panel than at its own strict parent, the Financial Services Authority.
The listing authority has quietly changed its rules so that from now on a bidder can avoid suspension on a reverse takeover so long as it can provide basic data on the target’s profits, net assets and liabilities and cashflow.
So long as there are comfort letters from advisers and a trading update, such figures can be unaudited, in incompatible accounting formats, and can be changed later.
Bids by cash shells are still subject to the old tough rules and the loophole of creating new topco to buy both the listed company and its target has been closed, but avoiding suspensions can only help shareholders.
The UKLA says halting dealings can ensure smooth operation of the market and protect investors, but what is the point of protecting investors if they cannot sell?
