The Financial Services Board (FSB) will be looking into whether leaked information caused suspicious trade in Dimension Data shares just before the company announced it would be bought out in a R24.2 billion deal.
On 15 July, the London- and Johannesburg-listed company said it had received a £2.1 billion offer from Japan-based Nippon Telegraph and Telephone Corporation (NTT) to buy out all of its shares. The news sent its shares shooting more than 20% higher in early morning trade, before settling to close at R14.12.
However, in the days just before the announcement, shares in the company changed hands more rapidly than usual.
On 12 July, 1.6 million shares changed hands, while another 5.2 million were traded the next day. On 14 July, the day before the announcement, 3.9 million trades took place, while on the day the news was published, 37.6 million stocks were exchanged.
However, on Friday only 440 574 shares were traded. Its share closed at R13.62 before the weekend, 2c up on Thursday's close.
Suspicious timing
The FSB is investigating the volume of shares traded between 12 July and the day the sale was announced. Executive director of the board's market abuse division, Gerhard van Deventer, says an investigation will be launched shortly into the suspicious trade activity.
However, Van Deventer says the investigation is not likely to kick off in the next month or two, due to the volume of work currently being undertaken into other unrelated investigations.
He cannot provide more information regarding the investigation, other than to indicate that the trade will be investigated to determine whether information about the deal was leaked, or whether there was an inside trade.
“There are certain transactions that seem to have been very well timed,” notes Van Deventer. He says the trades, unless they were lucky purchases, could be a contravention of the Securities Services Act.
In terms of the Act, it is an offence to disclose sensitive information that could have an effect on a company's share price before the market is informed, or to use such information to benefit from a movement in the share price.
Should the FSB find evidence of insider trading, or leaked information, the enforcement committee will determine what financial penalty could be levied against the guilty party, Van Deventer says. He adds that the fines that can be imposed are “unlimited”.
Deal on track
However, the FSB's investigation is not likely to derail Dimension Data's buyout by NTT, which is expected to be wrapped up by October, notes Absa Investments analyst Chris Gilmour.
On Thursday, the outsourcing company told the market that the European Commission had sanctioned the buyout, taking the company a step closer to being delisted from the London and Johannesburg bourses.
Gilmour adds that the trade in shares just before the announcement was suspicious, which the JSE picked up and referred to the FSB. He says the people who traded will be easily tracked down, but proving that the trade is directly related to leaked information will be more difficult.
“It's a very risky business, because the JSE spends an awful lot of time and effort tracking this kind of thing,” says Gilmour. He adds the investigation is likely to take months, and he expects heavy sanctions to be imposed if anyone is found guilty.
“At the end of the day, this leaked out somewhere,” says Gilmour, commenting on the volume of trade that took place just before the announcement was made.
Dimension Data's only comment on the investigation is that it is aware that the FSB is proceeding with an investigation and that it supports the board in its efforts.
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