How should price sensitive information be released?

Last week we saw Elon Musk tweeting that he was thinking of taking Tesla private at a price of $420 per share. This was before the company had made any announcement, causing the share price to increase by around 20% to just over $380. The price has since cooled to around $350 with concerns that the “secured funding” mentioned by Elon Musk might not be secured. So, this begs the question, how should price sensitive information be released?

Stock market announcements

The stock market has a very efficient and fast acting announcement service which should be the first port of call for any type of price sensitive information. Even though Tesla has since confirmed it is in talks with Elon Musk surely the company should have been first to release the information into the public domain?

How should price sensitive information be released?
How should price sensitive information be released?

There are rumours and counter rumours all of the time, which move share prices, but there were no rumours that Elon Musk was about to take the company private. So, on one hand all parties involved in the potential takeover would appear to have kept it under wraps but the official announcement was a PR disaster.

Regulators watching

There are rumours that the SEC is reviewing the detail regarding the announcement by Elon Musk and the subsequent confirmation by Tesla. While nothing has yet been confirmed, there are suggestions that the regulator will require details of all information given and received regarding the potential takeover. While the company also suggested that “funding was secure”, investors and analysts have their concerns.

This comes at a time when the company was under attack from shorters selling the stock with the intention of buying back lower down. The news of a potential takeover sent fear through the shorters who are forced to buy back stock creating huge losses and pushing the price higher and higher. This has been an ongoing battle between Tesla/Elon Musk for some time with many shorters airing their concerns in the public domain on a regular basis.

Controlling news releases

If there is an official news release service by the US stock market, as we know there is, this must be the best way to control the release of price sensitive information by listed companies. The rather bizarre way in which Tesla and Elon Musk handled the announcement of a potential takeover has already led to two legal challenges which will go before the courts very soon. Prosecutors are suggesting that the company may have released news of a potential takeover simply to force those with short positions to buy back their stock. While this seems incredibly unlikely, bearing in mind the strict regulatory framework in which all listed companies operate, Elon Musk has a tendency to do whatever he likes.

Conclusion

The flow of price sensitive information is constant, both in the public domain and behind-the-scenes, but there must surely be a better way to announce a potential deal with enormous consequences for Tesla shareholders. Social media is a major part of the investment markets today, allowing companies to reach out to shareholders and customers as if they were literally in the same room. However, when it comes to price sensitive information surely the SEC must come down hard on Tesla and show they mean business. If not, where does it all end?

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