Bryce Elder of FTAlphaville examines at how TD Securities’ equity sales team complies a list of M&A reporters by their hit rates and the faulty metrics.
Elder writes, “Here’s how TD explains itself:
To be eligible for inclusion in our data set, the article needed to relate to a sale of a whole, listed [North American] company (no asset or stake sales) and only the journalist’s first story about a potential transaction is counted, unless there are material changes to information provided (acquisition price or named bidders) or if multiple reporters have reported on it the first report in a 6 month window counts (i.e. if someone reports in January and someone reports in July and deal is inked in August the reporter in July would get credit). For instances where an article is written but no transaction has yet occurred, we delineate a miss by the average number of days between articles being published and average days to DMA [Definitive Merger Agreement] for the journalist’s successes.
“There’s a lot about the above that looks arbitrary.
“Under US regulations, companies have no legal duty to disclose merger discussions until they’re finalised. That process can take ages. TD’s “first report in a six-month window” cut-off may be designed with pre-event traders in mind, who probably don’t like the idea of sitting on positions for more than half a year. To a deals reporter, however, it looks more like a punishment for being early.
“Resetting the clock on any significant change of circumstance is equally contentious because it ignores the careful choreography of M&A reporting.
“Takeover stories will only reach the press when someone wants them to be known. Sometimes, that means news being delivered fully formed to a reporter a few hours before its official announcement. Other times, the process is much more pokey.
“Maybe a company wants to capture the narrative on a pending deal, or maybe it wants a sanity check from investors much earlier in the process. Maybe the leak comes from a target that’s trying to put pressure on its would-be acquirer to walk away. Maybe a well-informed market participant wants a rumour in the public domain to avoid any appearance of insider dealing. Maybe they would appreciate the exit opportunity of a share-price pop on a transaction that’s at risk of falling apart. In all examples, the leak might pass first through many interconnected parties before reaching its target.”
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