Bowleven shares rose 70% following a takeover bid

Last Friday the share prices of the Bowleven were soared up by 70% following a potential takeover bid leaked to the market. Dragon Oil, a Dubai based oil company who is a major player in the industry has showed the interest of acquiring the share capital of its small rival Bowleven which has been undergoing the projects of exploration of oil and gas in the west part of Africa presently. Immediately after the leakage of the news the share prices of Bowleven has risen to 128.25 which was an increase of 73% from the existing prices. However still the confirmation is due by 16th of March whether Dragon oil will go ahead with the takeover offer or not.

This indicates the efficiency of the market where the investors react in a quite prompt manner following the leaked information. Anticipatory price movement leads the market price of shares to rise even before the occurrence of the particular event. In fact, in today’s sophisticated market with the availability of access to wide range of information sources investors start reacting very quickly.

However this is relatively a rare incident in the recent history since with the effect of economic down turn the mergers and acquisitions were not used to take place quite often. Moreover, during the year 2010 the share price movements have fallen down by 30% compared to the previous year. The number of takeover deals took place during the year 2009 were 118 which used to be 144 previous year. Out of the takeover bids took place 24 and 44 deals were leaked to the market before the actual incident take place during respective years.

During past couple of years Financial services authority UK (FSA) has been taking number of steps to avoid such leakages of information to market, but looking at this from a different perspective the evasion of leaking sources by FSA might also make the market more volatile through the shocks created by fresh formal information. It might cause sudden ups and down in the share prices instead of the smooth growth or decline created by the gossip and rumors arose. In my opinions that would be even worse than the current situation since it will make the market far volatile and risky.