Research Handbooks in Corporate Law and Governance series
Edited by Stephen M. Bainbridge
No information is as price sensitive as information on pending takeover bids, rendering takeover bids a prime context within which insider trading occurs. The sentencing of former Goldman Sachs board member Rajat Gupta and of Raj Rajaratnam, the hedge fund manager, for example, was partly based on illicit trading on information regarding pending takeover bids. This chapter offers a positive analysis of the European regulatory framework with respect to insider trading in the context of takeover bids. We distinguish between trading by the bidder, by the target and by classical insiders such as officers and employees. Where relevant, we draw a comparison between EU law and US federal securities laws. The analysis suggests that European insider trading laws are insufficiently tailored for corporations, and that significant uncertainty remains as to the precise scope of the prohibition on insider trading in the context of takeover bids. We start by addressing the issue of precisely when information about potential takeover bids qualifies as inside information (section 2). From that particular moment onwards, the prohibition on insider trading applies and an obligation to disclose the information without delay is triggered. Those who are in possession of inside information are generally prohibited from selectively sharing this information with others or giving recommendations (tipping), causing difficulties for potential bidders who wish to reach out to major shareholders of the target to obtain irrevocable undertakings or to their own shareholders to gauge whether they are willing to support the bid.
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