The E&O price surge – and collapse

Good article in The Star by P. Gunasegaram, one of my favorite journalists, about the recent boom and bust in E&O's share price:


Nothing less than the integrity of our markets is at stake here. For too long, market manipulation and insider trading have been excused on the grounds that it makes the market, that it provides excitement and that it provides opportunities to make money for both traders and brokers.

But really, that's not the purpose of the market. The purpose is to provide a place where investors and others can seek a fair value for the assets they buy and sell through a fair, transparent and straightforward process that provides equal information and opportunity to all.

The economic aim for all that is to provide investors with a place to raise capital efficiently so that business can flourish.

It is lamentable that this basic aim of capital markets seems to be lost and it has become a place for wheelers, dealers and plain crooks to make money in less than honourable, and even illegal, ways.
What a shame! And will it ever change?


And I very much agree with that.

I would like to add two items to the discussion:

[1] The writer thinks that it is a quite clear case (based on previous ones) that Sime Darby does not need to make a mandatory general offer for the remaining shares. I think each case is different, and especially this one is intriguing. Two peculiar facts of this deal are that Sime Darby bought its shares at a high premium (60%), and that the sellers still have quite a few shares left. Together with each of the sellers, Sime Darby easily breaches the 33% rule.

[2] The writer does discuss the huge volume in E&O shares traded after the article on The Malaysian Insider was published, but there was also a huge volume in E&O call warrants. I have never liked these call warrants (they don't add any value to the economy), but the more so since it is unclear who the sellers are, retail investors who bought the warrants before, or bankers who still had inventory of them. I definetely hope that the trade in these warrants is also investigated by the authorities.

The E&O/Sime Darby saga will continue to hog the limelight for quite some time.