Takeover Bids and Insider Trading

This paper analyzes the law and economics of insider trading in the context of takeover bids, focusing on the European regulatory framework. We distinguish between trading by the bidder, by the target and by classical insiders and first address the issue of precisely when information about potential offers qualifies as inside information. Next, we address the prohibition on selectively sharing inside information with third parties, the prohibition on tipping and the obligation to make public disclosures. We then analyze the extent to which bidders are permitted to build a stake in the target prior to the offer and the prohibition on target companies and classical insiders to trade on information regarding a pending offer. Finally, we address reporting obligations in respect of share transactions by those who have access to inside information, showing that these obligations serve multiple purposes including facilitating enforcement of the prohibition on trading on inside information, improving informational efficiency of the stock market and notifying target management of pending takeovers