Thursday, June 15, 2006

Did News of the Maverick Tube Acquisition Leak Out?

Maverick Tube Corp. announced after the market closed on Monday, June 12, that it agreed to be acquired by Tenaris S.A. at $65 per share, a 30%+ premium over its stock price.  A St. Louis Post-Dispatch article (here) notes that trading in Maverick Tube July 60 call options spiked in the days before the deal announcement.  While the average trading volume for those options was about 100 per day, in the last three trading days before the announcement the volume was over 1,000 per day.  The call options give the purchaser the right to buy Maverick Tube shares at $60 until the contract expires in mid-July, a very bullish bet on a stock then trading in the $45-$49 range, especially because the option expire in about 5 weeks and the market has been in the doldrums.  Did someone just get lucky and win the lottery?  That's unlikely, as shown in other insider trading cases, most notably in the acquisition of Reebok by Adidas in 2005, in which the SEC and federal prosecutors are pursuing cases against a number of purchasers.  The Maverick Tube options trading is likely to pique the SEC's interest because the gain is so enormous and the bet so risky.  Of course, if the purchasers had inside information, then transactions were risk-free.  There is no word yet about an SEC investigation, but I think the likelihood of such an inquiry is quite high, especially if the call option purchases were conducted through entities or brokerage accounts designed to shield the identity of the true owners.   And don't be surprised to see prosecutors from the Southern District of New York lurking about. (ph)

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