Analysis The publication of market sensitive information earlier this month by local news agencies pushed Harman International's share price up 33%.
Media reports, and stocks rise or fall
When the announcement of a possible bid for Harman International was published on July 20 by a Kuwaiti newspaper Al Watan and the online business portal AME Info, the audio systems company's shares jumped 33 per cent in pre-market trading. Harman immediately denied the report and its shares dropped 17 per cent. AME Info quickly withdrew the article from its website, but the damage had been done.
It was not the first time false reports on mergers and acquisitions have found their way into headlines. On Thursday, after Gulf Keystone Petroleum denied talks of a takeover by Indian companies as reported in the Indian newspaper The Hindu, its shares fell 20 per cent. And in April, a hoax offer for the US conglomerate Textron by an unknown Middle East group was published by a Kuwaiti newspaper and sent the company's shares up by 58 per cent, the highest in 28 years.
A bogus statement referring to Emulex, a networking solutions company, in 2000 claimed its chief executive would be stepping down. The story was carried by a number of news organisations and led share prices to fall more than 50 per cent. Mohamed Elzubeir, the chief executive of the media analysis company Mediastow, said the secret nature of mergers and acquisitions, coupled with the competition within the media, could lead to news agencies overlooking basic details.
"Sometimes the story is so good that fact-checking takes a back seat," Mr Elzubeir said. "I would blame the media for the end results." Some news companies did look twice. When Reuters reporter Ransdell Pierson received a call and fax about the Harman buyout, he immediately became suspicious about the lack of contact details. "It was plausibly well written, so I did not dismiss it out of hand," Pierson said on the news agency's DealZone blog, "But I was sceptical."
Pierson, who included a copy of the original press release in the blog, wrote that while the business logo for Arabian Peninsula Group, the supposed buyer, looked legitimate, there was no reference to the company on Google or by any major news organisation. He called his editor, who said such a deal in the downturn would be unlikely. Mr Elzubeir, who has researched media coverage and stock movement, used a report on the UAE's property sector to illustrate the relationship between the two.
He noted that when companies such as Aldar Properties and Sorouh Real Estate sent out positive messages of keeping employees and having enough finances for projects, their stocks went up. But as soon as Emaar Properties announced job cuts and cancelled some plans, Mr Elzubeir saw a fall in share prices. "First thing in the morning, investors read the news and if something does not smell very good, they react to that," he said. "It's really psychological."
Ali Khan, a director at Arqaam Capital, said incidents of hoaxes being published should remind the media of their responsibilities when handling business news. "If there is any info that's price sensitive, it needs to be regulated," Mr Khan said. "That still doesn't stop individuals and it puts more onus on the media." Vyas Jayabhanu, the head of Al Dhafra Financial Brokerage, said he expected and hoped investors would become more wary of what the media releases.
"They have to realise, for investors, the media is the very root of communication about the stocks," Mr Jayabhanu said. Mr Elzubeir said that in the case of mergers and acquisitions, the media could not be held completely accountable for the leaks that took place. In his studies, he found the details of such deals were so shrouded in secrecy and lacking in public relations that it led to negative press.
Mr Elzubeir said even though the Harman scandal ended quickly, he would not rule out that it could happen again unless the media changed its tactics and stopped publishing press releases. "It will happen," he said. "It's how many times it will happen is what the media can control. I would say check your sources." email@example.com