The Street-Smart Trader by Ian Lyall

Author:Ian Lyall
Language: eng
Format: epub
Publisher: Harriman House

The Friday night drop

It’s a very old tradition in the City that a Sunday newspaper journalist – usually from the Sunday Times or Sunday Telegraph – will be briefed on an exciting story likely to break the following week. This symbiotic arrangement has existed for decades but is utterly frowned on by the regulators. The best way to show how the drop works is to reprise our takeover example.

A predator company might push out a story on its acquisition plans shortly after the market closes on Friday evening. The idea then is that those plans will then be run prominently in the weekend papers in order to gauge City opinion of the deal, giving investors the chance to consider its merits. If the shares then tumble 15% on Monday morning, it’s the equivalent of the dreaded three neon crosses on Britain’s Got Talent – a big thumbs down on the takeover. The duplicitous spin doctor would then simply pin the blame on the journalist and his over-active imagination. Job done.

If, however, the mooted transaction flies and the shares rise, the report can be used as a basis for dialogue with investors who may have to fund the deal by agreeing to a mega share issue.

The example of the City takeover story also works in a different way. The spinner for the target company might be the one to leak the story – eager to get the tale out into the open to blow the cover of the predator company. This will give the aggressor a little less room for manoeuvre and will force its board to decide whether to make a formal approach or walk away.

During the recession, M&A stories were in short supply. That didn’t mean the drop just simply disappeared. Instead, refinancing stories, rights issues and restructuring plans were all given an airing in the Sundays.

Knowing how the system works, a street-smart trader will read the Sunday press with a wry smile on his or her face and ask: “Why has this story been leaked?” And it will allow them to adjust their market positions, if need be, accordingly – and to make sense of some movements that, perhaps, come out of nowhere on Monday morning.

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