Retail giant Kesa Electricals (KESA) has denied any wrongdoing after board members bought shares in the company just days before unveiling the possible sale of its French furniture and electricals business BUT. Chairman David Newlands invested more than £100,000 in 32,798 shares in the company on 28 June, while both Michel Brossard and Bernard Dufau also made more modest investments. Yet just five days later the company confirmed it had received a ‘number of indications of interest’ to buy BUT, after speculation in the French press.

While many City analysts welcomed the news – some saying the sale could add up to 15% to group earnings through future share buybacks – it also raised the question of whether these three directors were in possession of price sensitive information when they raised their shareholdings. Kesa admits that Newlands knew of these approaches when he bought his shares but argues that this knowledge was not price sensitive, based on there being no guarantee that a bid would ultimately emerge. However, the reaction of the shares to the possible approach for BUT – they rose roughly 7% to 337p on the day, adding close to £120 million to the company’s value – suggests that the market did view this development as price sensitive. Newlands has so far failed to respond to our attempts to contact him.

This development comes at a time when the financial watchdog, the FSA, has been complaining about the problems of prosecuting insider trading. They argue that it falls to company directors to be whiter than white in their own share dealings. Even if, according to the letter of the law, the announcement regarding BUT was not deemed ‘price sensitive’, it does appear to go against the spirit of the law.

by: John Marshall