Due Diligence in Share Acquisitions: Navigating the Insider Trading Regime

Abstract

The goal of this paper is to unpack the underlying friction between the need to facilitate due diligence in share acquisition transactions that could place inside information in the acquirer’s hands, and at the same time to ensure that such information is not misused by the acquirer to the detriment of the other shareholders, a matter that insider trading regime regards as sacrosanct. In analysing and seeking to resolve this tension, this paper draws upon examples from three jurisdictions, namely the United Kingdom (UK), Singapore and India. The core argument of this paper is that from a theoretical perspective the due diligence objective of acquirers can be reconciled with the goals of the insider trading regime in order to preserve the interests of the target shareholder as long as certain restrictions are placed on the conduct of the acquirer.

Keywords: Due diligence, insider trading, parity of information, takeover, market-sounding, wall-crossing