 |
||||||
| Friday, November 20, 2009 |
Contact Us
|
 RSS
|
|||||
|
|
| |
|||
|
||||||
|
||||||
|
|
ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
|
|
|
|
May 14, 2007 12:01 AM ET
People who either know about a deal or suspect one is forthcoming may purchase low-priced call options on a suspected target, locking in a purchase price on the stock. When word of a deal breaks, those target stocks typically rally, allowing the call buyer to snap up the shares at the now-bargain price. Nothing new there. But with deal volume hitting record levels with the aid of cash-heavy private equity shops, suspicious pre-deal trading is getting special attention from regulators. And with good reason. “In a typical corporate merger, the number of touch points is so much smaller that the likelihood of a leak is statistically much reduced,” said Bob Profusek, co-chair of the M&A practice at law firm Jones Day. But the complexity of the financing required for private buyouts make it almost inevitable that rumors will hit the street before the announcement. Additionally, the many players in buyouts may sometimes operate under different rules, said former Securities and Exchange Commission chairman Harvey Pitt, now with consulting firm Kalorama Partners. “Buyouts often involved entities that aren’t regulated the same way financial services firms, especially investment bankers, are,” he said. “Many participants in buyouts haven’t paid as much attention to the dissemination of inside information, and may have laxer compliance standards.” Keeping things quiet when assembling a deal like the $45 billion buyout of energy company TXU Corp. or the $33 billion deal for hospital operator HCA Inc. is no small task. Also complicating matters: They’re often done as what are called “club deals,” in which multiple private equity shops are involved, each with their own advisers and sources of financing In fact, of the 10 biggest buyout deals reviewed by FinancialWeek, just three had a sole private equity sponsor: Blackstone Group’s acquisition of Equity Office Properties, Kohlberg Kravis Roberts’ pending deal for First Data Corp. and Cerberus Capital Management’s purchase of Albertson’s Inc. Equity Office’s call option trading jumped 100% right before news of the deal broke last November—well below average for the top 10 buyouts—while Albertson’s three-day volume stayed close to its 20-day trend. First Data saw a 345% pop in call option trading last month, making it second only to HCA (a 741% spike in July 2006), which was bought out by a group including KKR and Bain Capital. Corporate mergers are hardly immune to run-ups in options trading ahead of their unveiling. Most recently, trading in Dow Jones & Co. options spiked more than 500% in the days before word of News Corp.’s $5 billion bid for the company hit the public airwaves. Such fortuitous investing has long had the attention of the SEC, and the agency recently began reinforcing how seriously it takes it by quickly targeting the most suspicious trades. Last week, the regulator sued a Hong Kong couple for allegedly using inside information to make more than $8 million by buying Dow Jones shares ahead of public word of the News Corp. bid. Other trades surrounding the offer announcement are being investigated, the SEC said. The Dow Jones case—the biggest pop by far for the 10 corporate-only deals examined by FinancialWeek—has more than a few unique features to it. For one, the News Corp. bid offered a substantial 50% premium. And Dow Jones’ controlling Bancroft family hired its own slew of advisers, adding a layer to the usual teams representing potential buyer and target. Additionally, it’s been acknowledged by editors at the company that they knew of the offer at least a week before it became public, theoretically compounding the opportunities for leakage. Dow Jones aside, the SEC’s trading crackdown of late seems to be homing in on big private buyouts. Two weeks ago, it sued a Credit Suisse banker for allegedly leaking information to investors in Pakistan who netted $7.5 million trading on several transactions, including the deal for TXU. In March, it filed charges against a London couple for trades also made ahead of the TXU buyout. Last year, the SEC sued several people over options bought in advance of the $1.7 billion buyout of Petco Animal Supplies by Leonard Green & Partners and Texas Pacific Group. An SEC spokesman declined to comment about whether buyout deals in particular are being targeted. One thing’s clear: The agency has its work cut out for it. Last week’s bid for aluminum maker Alcan by competitor Alcoa pushed announced worldwide merger volume over $2 trillion for the year, according to Dealogic, the fastest that mark has been reached since the start of the year. However, the insider trading suits the SEC has filed thus far are over trades that are more blatant than what may be occurring in the options trading surrounding some deals, according to Mr. Profusek. “You’re going to end up seeing circumstances in which people heard a rumor and bought some options,” he said. “And it could be at some highly perfumed institutions and not a situation where a guy knows he is doing something wrong because he knows the deal is happening. You’re going to see some rumor cases and those will be tougher to prove.”
|
|
|
|
CRAIN'S BENEFITS OUTLOOK 2009
SPECIAL REPORT
MOST POPULAR
|
MORE ANALYSIS
Crain Financial Group:
InvestmentNews |
Pensions & Investments |
Workforce Management
Copyright ©2009 Crain Communications Inc
All rights reserved.
Privacy Policy |
Terms & Conditions