438 13 Due Diligence and Disclosures
The performance of due diligence can mean that the potential buyer gains access
to company information which is only partly public and includes inside informa-
tion. However, provisions of the Directive on market abuse do not prohibit the
target’s board from permitting due diligence as such.
The Market Abuse Directive prohibits a person who possesses inside informa-
tion from disclosing inside information, but the prohibition only applies where
such disclosure is not made in the normal course of the exercise of the employ-
ment, profession or duties of that person.^24 For example, the Directive does not
prohibit board members from deciding to disclose inside information to a potential
buyer as part of their normal board duties, or a manager from enforcing that deci-
sion as part of his own normal duties.
On the other hand, the Directive on market abuse also prohibits a person who
possesses inside information from recommending or inducing another person, on
the basis of inside information, to acquire or dispose of financial instruments to
which that information relates.^25 In share deals, permitting access to inside infor-
mation by means of buyer due diligence is close to inducing the buyer to buy
shares – in fact, if the board permitted buyer due diligence without any intention
whatsoever to induce the buyer to buy shares, board members would typically
breach their duty of care (see above).
However, it goes without saying that some forms of buyer due diligence are
permitted even in share deals. The Directive on market abuse does not prohibit se-
lective disclosure if the information is not inside information. (a) As a rule, the
target should already have disclosed all inside information.^26 The information dis-
closed to the potential buyer is not regarded as inside information unless it “would
be likely to have a significant effect” on the price of the target’s shares on the
price of related derivative financial instruments.^27 The data room can therefore
contain other than inside information. (b) The Directive does not prohibit the (se-
lective) disclosure of inside information if the target company simultaneously
makes “complete and effective public disclosure” of that information.^28
In any case, inside information may not be disclosed to the potential buyer
without making public disclosure of the same information, unless the persons who
gain access to the information owe a duty of confidentiality on the basis of an
NDA or as part of their professional duties or otherwise.^29
Fourth, the exchange of information in the course of pre-acquisition due dili-
gence is constrained by competition law (see Volume I).
The exchange of information between competitors in the course of due dili-
gence or otherwise can violate Article 81(1) of the EC Treaty which prohibits
“concerted practices which may affect trade between Member States and which
(^24) Article 3(a) of Directive 2003/6/EC (Directive on market abuse).
(^25) Article 3(a) of Directive 2003/6/EC (Directive on market abuse).
(^26) Articles 6(1) and 6(2) of Directive 2003/6/EC (Directive on market abuse).
(^27) Articles 6(1) and 6(2) of Directive 2003/6/EC (Directive on market abuse).
(^28) Article 1(1) of Directive 2003/6/EC (Directive on market abuse).
(^29) Article 6(3) of Directive 2003/6/EC (Directive on market abuse).