Agoracom Blog

Big-Cap Insider Trading During Takeover Mania?

Posted by AGORACOM at 9:51 PM on Monday, May 7th, 2007

The takeover tidal wave that has hit the markets as of late has been nothing short of exciting for any market bull. If you had the guts to hang in there when the market drop in Q1 had CNBC running nightly hand-holding sessions and turned a handsome profit, then bravo to you.

Unfortunately, I’ve started noticing lately that some “investors” appear to be making gains of the “risk-free” variety. That is, stock activity prior to takeover announcements are clearly indicating insider trading in advance.

For example, on May 3rd, Swedish Steelmaker SSAB announced it would acquire Ipsco for $160/share. All other things being equal, Ipsco is just another boring steel maker – and its trading activity for most of the previous 6 months supports this:

From December to mid-Feb, Ipsco spent most of its’ time in the low $100 range, though it made a couple of unsuccessful attempts to break through $120. It did finally make one short-lived run into the $130 range but that didn’t last long either.
In mid-March, however, the boring steel-maker goes parabolic for no apparent reason. By the time management announced in early April it was in discussions that might lead to a sale, the stock had already hit nearly $160. Ironic that is stopped just short of the eventual acquisition price isn’t it? Was anybody curious as to why a boring steel-maker gained almost 60% from January to April?

EXAMPLE #2 – Dow Jones Takeover Bid

In the case of Dow Jones, Paul Kedrosky points out that there was some big buying pre-announcement of $45-ish calls that were trading below $1. Post-announcement, they soared to $12.

Big option volume on no news >>> takeover bid announced >>> 1,200% gain.

Anybody know a good rocket scientist that can help figure this out? If not, a decent street hustler will do. The big boys are in the know and they are cashing in.

Given the hard time small-cap companies get for minor transgressions, it would be nice to see the same magnifying glass turned on the big boys for some pretty obvious ones.


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