Anonymous sources in reports can affect deals
21 JANUARY 2016 8:48 AM
Anonymous sources and leaks are part and parcel of any major transaction. The former can be useful if used properly and with appropriate guidelines; the latter can be downright harmful.
When a major deal is in the works in this or any other industry, it's a safe bet that the formal public announcement will only serve to confirm what had been previously rumored for days, weeks or even months.
Stories speculating about a particular transaction usually are given a veneer of truth and credibility by the appearance of anonymous sources. They go by a variety of euphemistic labels: “persons familiar with the situation,” “close to the company,” “with knowledge of the company.”
Because legitimate and respected publications and news outlets utilize such sources, it is indisputable that they have the power to move markets. Consider it the “where-there's-smoke-there's-fire” syndrome. Anonymous sources tend to be individuals who really do know something about a pending deal: an advisor to the company, a securities analyst, a director, a major shareholder or someone in senior management.
The simple fact is that a company might want to “comment without commenting,” or clarify a misconception or fact without attribution, especially if or when the rumor mill gets so hot that markets are reacting as a result. That’s perfectly reasonable.
Where it gets dangerous is if an organization uses the anonymous source route to float a trial balloon to gauge how the market might react to a particular deal. Attempting to manipulate markets is never a good thing.
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Action and reaction
How, when or if to use anonymous sources is a big issue in journalistic circles these days.
Some news outlets are actively discouraging it, stating that unless a source is identified it won't use the information. But such a stance is rare. News organizations, whether in traditional or social/digital media, are competitive; they want the story. And as long as a source—anonymous or otherwise—is considered credible and knowledgeable, most outlets will use the information and respect the desire for anonymity.
Why? Because it may be the only way for the paper or magazine to get the story.
Many sources (especially those closely associated with the company in question) understand the sensitivity of the matter and will not speak unless their anonymity is guaranteed. If news organizations were not permitted to use such sources for quotes or background, much reporting would come to a standstill.
Whether this is good or bad is difficult to say. There's a symbiotic relationship between the media and the companies they cover. The press wants a story, and the company wants its story told in the best way possible. But both parties need to understand (and for most part, they do) the impact leaked stories or those using anonymous sources can have in the marketplace.
If the market reaction is severe enough, trading in a company's stock could be halted, with the company forced to issue a formal news release. A deal could fall through. If the company's stock price spikes or drops precipitously, the price of the transaction could be affected based on the premium. These sound like doomsday scenarios; in fact, what generally happens is that the transaction proceeds apace without any dire consequences. But the potential problems are real and must be considered when leaks occur, whether they are intentional or otherwise.
If a close relative of the anonymous source is the leak, it can, in extreme cases, lead to insider trading or other serious matters. As it relates to press leaks, in the old days one only had to be concerned with a few newspapers, magazines and broadcast outlets. Today, of course, the prevalent use of social media opens up more avenues to possible abuse of confidential and material information. Further, when so many individuals—both inside and outside the company—are involved in a transaction, the potential for leads increases exponentially.
Limit the leaks
All of this speaks to the wisdom of limiting the number of people privy to sensitive discussions and negotiations. But in the real world, there is no way to absolutely guarantee that confidential information might find its way into the media, or into the hands of people who might misuse that information.
Many years ago, a company negotiating a transaction saw its stock price spike the day before the public announcement was to be issued. While the deal itself and the sale price were not affected, the premium being paid for the company suddenly looked a lot weaker, and needless suspicion arose about what caused the jump in the stock.
After much hand-wringing and investigation, it happened that an individual at one of the credit rating agencies (which, as a matter of course, had to be brought into the discussions) gave a heads-up to a friend who in turn traded on the information. This was regrettable for sure, and consequences came down for the individuals involved, but misuse of information will be with us so long as human beings and money are involved.
In another instance, a company PR representative gave similar advance notice to a journalist several hours before the public announcement, and before the contracts were signed, asking the reporter to “hold space.” That alone would have been acceptable, but the staffer also provided the reporter with various details of the transaction. The newspaper put out a brief story on the wire, which one of the lawyers working on contracts noticed on his laptop. Again, no lasting damage (except to the staffer's standing in the company); the contract signing was delayed by an hour or so while the lawyers and senior management sorted through the leak.
Anonymous sources and leaks are part and parcel of any major transaction. The former can be useful if utilized properly and with appropriate guidelines; the latter can be downright harmful. It’s best to play it straight and above board.
Marc Grossman is a senior communications executive who served as senior VP, corporate affairs, for Hilton Hotels Corporation, where he was responsible for all global corporate communications, investor/financial relations, public affairs, brand/marketing public relations, crisis communications and internal communications. He also held senior positions with three leading international communications firms. He can be reached at firstname.lastname@example.org.
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