The pros and cons of companies talking about M&A talks

The Fort Wayne Journal Gazette has an excellent article in today’s newspaper about the pros and cons of a company talking about whether it is involved in negotiations for a merger or acquisition.

The paper had a local company that was rumored to be in such a deal. Repeateadly, apparently, the company said it didn’t comment on rumors. (All business journalists have heard this line.)

The reporter, Arundhati Parmar, does a great job of talking about why a company does and doesn’t confirm such talks. There’s even a discussion of Regulation FD’s impact.

Parmar wrote: “John Nester, a spokesman for the SEC, said that Reg FD stipulates that companies must fully disclose material information to investors at the same time. Companies may be charged with selective disclosure if only a few investors are informed and those individuals then use the information to make a trade. That constitutes illegal insider trading.

“‘Material information is information a reasonable investor would want to know before (he/she) decides whether to buy, hold or sell,’ Nester said. “‘A merger or acquisition would be considered material information. So if a company discloses such information selectively, it may run afoul of Reg FD.’

Yet, there are no hard-and-fast rules, and Nester said Reg FD is not meant to be a ‘proscriptive script,’ which imposes restraints or restrictions on the way public companies operate. Ultimately, courts are the final arbiter in determining whether companies are liable, he said.

We’d — and by that I mean the business journalism community — all like for companies to disclose more about negotiations before a deal is announced.