To all:
Interesting article on info spread by online boards:
Chatter About U.S. Surgical Shines Light on Cyberinvestors
By MARK MAREMONT
Staff Reporter of THE WALL STREET JOURNAL
Tyco International Ltd.'s $3.3 billion acquisition of U.S. Surgical Corp. was officially announced late Monday. But to cyberinvestors who scan Internet message boards, the deal wasn't much of a secret.
Beginning on May 7, reports of talks between the two companies appeared on a Yahoo! Inc. message board devoted to the smaller medical-products maker's stock. As the supposedly secret talks grew closer to fruition, the Internet chatter grew more heated. Last week, a few of the on-line participants correctly pegged the deal's price range and announcement date.
"Some of the messages were incredibly accurate," says J. Brad McGee, a Tyco senior vice president.
Although it isn't clear if there is a connection, U.S. Surgical's stock price started rising the same day that speculation about a deal began on the Yahoo site. The stock, traded on the New York Stock Exchange, soared 28% in the 12 trading days before the official announcement. (Though there were also news reports late last week about a possible takeover, much of the surge came before those reports, as the Internet chatter raged.) Yahoo operates a popular Web site that is typically used for Internet searching, but also operates investment message boards that can be reached from the site.
'Call' Options Surge
Trading in U.S. Surgical "call" options on the American Stock Exchange also surged after May 7, averaging about six times their normal daily volume during the two weeks prior to the deal. A call option gives the buyer the right to buy a company's stock at a specified price on a future date, enabling the buyer to profit from a rise in U.S. Surgical stock.
Some Internet Sites Are Cracking Down on Small-Stock Chat
Regulators at the New York and American exchanges and at the Securities and Exchange Commission decline to comment about whether they are investigating, although they say they routinely look at any unusual trading activity preceding a news event.
But the SEC has several continuing investigations into similar situations, according to Thomas C. Newkirk, an associate director in the agency's enforcement division. The inquiries, he says, involve instances in which "people have been uncannily accurate in their postings on Internet discussion groups." The SEC hasn't yet brought any cases based on these probes, he adds.
Want to receive an e-mail alert when Heard on the Net columns are published? See details on how to subscribe.
Regulators say the Internet has added a new and potentially troubling wrinkle to regulating the securities markets, because the medium can be used to spread information quickly and relatively anonymously, at almost no cost. Cyberspace also makes it easier to spread rumors or information that may fall short of inside knowledge, such as the fact that one company's executives were spotted visiting another company's headquarters.
The SEC warns that the few nuggets of genuine inside information popping up on Web sites are dwarfed by the numerous instances in which hucksters have tried to spread misinformation. The agency is concerned that "When you're on-line, you don't know who these people are, or what their motives are," says John Reed Stark, who heads the SEC enforcement unit's Internet program. "People should not be basing investment decisions on message boards." He says the SEC is concerned that on-line message boards and chat rooms are being used to manipulate stocks.
Inaccurate Postings
In late April, shares in tiny 4Health Inc., Boulder, Colo., nearly doubled on Internet message-board postings that so far have turned out to be inaccurate. The rumors about the vitamin maker included a takeover offer and a marketing agreement with America Online Inc.
Mr. Stark says the SEC has found instances in which people have been impersonating others. He adds that the agency has often been successful in its attempts to determine the true identity of people who post messages on the Internet using pseudonymous screen names.
In the case of the Tyco bid for U.S. Surgical, much of the chatter about Tyco, all posted by people using pseudonyms, appears to have been on target. Tyco executives say initial talks with U.S. Surgical, Norwalk, Conn., started in early April. They accelerated on May 6 and 7, when a team of Tyco executives visited a U.S. Surgical facility in North Haven, Conn., to perform a financial due-diligence appraisal.
On the second day of their visit, somebody posted a message on the Yahoo site asking whether a Tyco takeover of U.S. Surgical might make sense. A reply, from "Y2K 0000," said: "They're talking." A day later, that same person posted a message reporting "a whole bunch of activity and a lot of meetings" at U.S. Surgical, and opined that the company's chief executive, Leon C. Hirsch, "was in the mood to sell." On May 9, "mufasa 157" chimed in with a note that Tyco was visiting U.S. Surgical facilities.
The chatter picked up, and on Tuesday, May 19, "tyco4ever" posted a note to expect a deal announcement on Friday or Monday. The latter proved to be the correct date. Last Friday morning, somebody with another screen name predicted a buyout range of $42 to $45 (the eventual price was $42.50 in stock, based on Friday's closing prices of the two stocks.) U.S. Surgical closed the previous night at $36.9375.
Not all of the on-line prognostications were accurate. One optimist predicted a price of $50 a share. Somebody obviously impersonating U.S. Surgical's CEO, using the screen name "Leon Hirsch," chimed in with a fake announcement of an impending deal with Amgen.
A Yahoo spokeswoman says the Internet company has no obligation to monitor postings on its message boards, and no legal liability for what is said. She declines to discuss the U.S. Surgical situation, but says Yahoo has provided information on message-board postings to the SEC several times in the past, after being presented with valid subpoenas.
Talks Accelerated by Chat
Tyco executives say the takeover talks were accelerated by the Internet chat and subsequent news articles late last week speculating on a takeover of U.S. Surgical by several potential suitors.
"It was all over the Internet," says L. Dennis Kozlowski, Tyco's chairman and CEO. Mr. Kozlowski says he has done more than 100 deals, but never had one leak as much as this one.
Although Tyco executives say they never changed their target price, they concede that the deal might have come unraveled if U.S. Surgical's stock had risen above $42.50 on the takeover rumors.
Tyco's smaller purchase of Confab Inc., a closely held maker of adult incontinence products and diapers, was also widely foreshadowed on a Yahoo message board starting about a month before it was officially announced on April 13. Tyco executives say there is nothing wrong with their security precautions.
"All it takes is for somebody to see that Tyco executives showed up at a meeting," Tyco's Mr. McGee says. "The Internet gives them the ability to broadcast it world-wide. What can you do?"
|
