The grubby performance of leaving shareholders in the dark notwithstanding, the Mayne Pharma takeover announcement yesterday at least showed there was some fire behind the smoke on this one – unlike so many others.

For example, while Mayne was showing its hand, Amcor was having to deny stories that it had received an offer, but the share price had already enjoyed bounced on the rumour. Then there are the usual suspects, Fosters and Insurance Australia Group, who are always good for a ramping. Like killer toy stories at Christmas, they’re almost seasonal regulars. And that’s just among the bigger names.

What happens when a company’s shares jump on a takeover rumour is demonstrated by Amcor this week. Rumour circulates in the market, price rises, media report it, price rises some more on the media reports, ASX asks the company if it knows why its price is up, company says nah, price is volatile for a while and then declines as everyone loses interest and wanders away to play with other rumours.

In the meantime, whoever started the rumour or fuelled it while buying a few shares has made a few dollars if they’ve also managed to offload them at the peak. Sometimes the rumours turn out to be true – insider trading, which is illegal. You could ask Steve Vizard about that, but he wouldn’t answer in case he incriminated himself.

The interesting thing though is whether there’s a case for insider trading to be made against anyone who trades on a rumour they’ve sparked, knowing it’s quite possibly not true. That is certainly operating in an uninformed market, but I can’t recall the ASX making an effort to track down such false rumours – they only rarely make an effort to track down the true ones.

The easy answer for that is that it’s simply too hard, would take too many resources and probably wouldn’t get anywhere anyway. So you can just go to it, buy a swag of Acme Road Runner NL, tell ten people you’ve heard they’re about to go off big time, watch the dog run and take your profit. Or maybe you’re an investment bank trying to make a takeover happen – similar outcome. Nice. Crooked, but nice.

Peter Fray

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