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Cyberchat saw Tyco deal
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May 28, 1998: 8:31 a.m. ET
Investors on a Yahoo! chat site called Tyco-U.S. Surgical deal weeks early
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NEW YORK (CNNfn) - Weeks before Tyco International Ltd.'s formal unveiling on Monday of its plans to buy U.S. Surgical Corp. for $3.3 billion, "Y2K 0000" was right on the money about the impending deal.
"They're talking," the cyberspace surfer wrote in an uncannily prescient message posted May 7 on a Yahoo! Inc.'s Internet chat site. At the time of posting, according to published reports, Tyco and U.S. Surgical executives were, indeed, huddled for the second straight day around a conference table hammering out the details of the acquisition-to-be.
Y2K's heads-up was one of dozens such tip-offs posted under pseudonymous screen names on a Yahoo message board devoted to U.S. Surgical products, the Wall Street Journal reported Thursday. On the same day the Internet chatter began in earnest, shares of U.S. Surgical began rising on speculation of the looming merger. Over the next 12 days, the company's stock would soar 28 percent.
Meanwhile, "call" options on U.S. Surgical - which grant investors the right to buy stock at a specified price on a given future date - surged to six times their normal volume in the two weeks prior to the deal.
It remains unclear how much, if at all, the cyber scuttlebutts contributed to the stock's rise. But the unusual accuracy of the Internet gossip about the Tyco deal is sure to raise eyebrows with securities regulators, who routinely probe instances of suspected insider trading.
Among the messages posted on Yahoo!'s popular chat board was one from a user who popped up on the screen under the moniker of "Leon Hirsch," U.S. Surgical's CEO, alerting browsers to an impending merger with Amgen, the Journal reported. That turned out to be false.
But other messages, like one on May 9 from "mufasa 157" tipping off chattermates about a visit by Tyco executives to U.S. Surgical facilities, were more on the mark. Another message-poster predicted a buyout in the range of $42 to $45. The eventual deal was for $42.50.
Tyco executives reportedly acknowledged that the Yahoo! yapping accelerated their talks with U.S. Surgical - and could have scuttled the deal if the speculation had driven stock prices too high.
"It was all over the Internet," L. Dennis Kozlowski, Tyco's chairman and CEO, told the Journal.
The Securities and Exchange Commission has declined to comment on whether it is investigating the incident. But Internet gossip of such a nature clearly raises concerns about the possibility of an inside leak.
More often than not, observers note, chat-room speculation proves to be misleading at best, and spurious at worst. Nonetheless, analysts say, the danger of such postings lies in their potential to manipulate stock prices and unravel deals.
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