Friday, May 18, 2007

Another Deal, Another Spike in Options Trading -- Part Deux

The private equity deals are coming fast and furious these days, as the multitude of posts on the recently-launched M&A Law Prof Blog can attest -- written by my colleague Steven Davidoff, make sure to check it out.  Almost every deal seems to be preceded by an inevitable bump in trading in out-of-the-money call options in the week(s) before the announcement.  The transaction at issue this time is one of the "smaller" ones this week, the May 16 disclosure of the acquisition of Acxiom Corp. by Silver Lake Partners and ValueAct Capital Partners L.P. for $27.10 per share, a total value of $2.24 billion.  Bigger deals announced in just the past couple days include the Bausch & Lomb acquisition for $4.5 billion by Warburg Pincus and Alliance Data by Blackstone for $7.8 billion.  But the trading in Acxiom is particularly striking, and hints strongly at insider trading.  According to a Bloomberg article (here), average volume in the call options was 135 contracts a day, but 1,400 traded on May 10 and another 1,300 on May 14, 15, and 16.  To make things worse -- or better, depending on your point of view -- most of the transactions were in May 25 call options that would expire on May 19, and the stock price was almost two dollar below that price and hadn't traded above $25 in months.  Risky, you say?  Add the fact that all the trading on May 16 took place in the last seventy minutes of trading, and the deal was announced after the market closed, and the SEC will be burning the midnight oil to figure out who was behind the trading, especially because the calls increased in value by 1,000% after the disclosure.  Timing in life is everything, of course, and can be a good starting point for an insider trading investigation, but it won't end there.  Another day, another deal, another SEC investigation no doubt.  Anybody getting tired of this yet? (ph)

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