While Kohlberg Kravis Roberts & Co., TPG Inc. and Bain Capital LLC meet behind closed doors to mount the world’s biggest leveraged buyouts, their deals already are common knowledge in the stock options market.
Options trading jumped an average 221 percent in the three days before the 17 biggest U.S. takeovers of the past year were disclosed, compared with the average for the previous 50 days, data compiled by Bloomberg show.
The acquisitions of Greenwood Village-based First Data Corp., the world’s largest processor of credit-card payments; Dallas-based electric utility TXU Corp.; HCA Inc., the biggest U.S. hospital operator; and student loan company Sallie Mae were all preceded by a surge in seemingly well-timed options bets, according to the data.
The record $188 billion of leveraged buyouts announced in the first quarter is fueling U.S. investigations of insider trading. Prosecutors charged a Credit Suisse Group investment banker with leaking tips in about nine takeovers on May 3, the second major bust of the year. Seven of the 11 insider lawsuits filed by the SEC this year involve options.
“We are seeing deliberate, calculated misconduct by people who otherwise make a substantial livelihood from the very markets they’re abusing,” Linda Thomsen, enforcement chief at the Securities and Exchange Commission, said last week.
“The behavior is not only illegal, it’s repellent, and we will be relentless in pursuing it.”
Buyout firms have raised a record $250 billion since the start of last year, enough to afford $2 trillion of acquisitions, including borrowing money, according to Morgan Stanley. The deals in the first quarter included the biggest ever, the $32 billion acquisition of TXU. The 17 biggest takeovers are leveraged buyouts and corporate mergers and acquisitions valued at more than $10 billion, according to Bloomberg data.
KKR’s $26 billion offer for First Data was preceded by a650 percent increase in options during the three days prior to the April 2 announcement.
