FDC Buyout - No Secret?

Discussion in 'Stocks' started by Wayne Gibbous, Apr 2, 2007.

  1. I was recently short FDC, off and on, and made money every trade. Last week I was short 800 shares. But I got out fast...

    They were just short term overbought trades for scalps. Usually a pretty good hit rate, but one bad trade could wipeout many good ones.

    Anyway, since they are system trades I don't look at too many other things, but FDC kept going up on increasing volume even when the rest of the market was down.

    What scared me was reading ole Steve Smith over at Real Money say that option volume was something like 2 or 4 to one on the call side. He made the comment to the effect of "might be a buyout at a 25% premium..."

    Up $6 today. I would have taken a good beatin' on it (thank you front runners!). Was I the only one not to know about this? Was it just "common knowledge" by traders, or a good guess?

    I hate to think anything crooked went on... :p

    Sorry for the ramble. Thanks. :)
  2. It seems like someone was interested in all these calls at 60 cents per share.

    1,599,800 shares X 4.75= about 7.5 million dollars

    Original cost of the calls= 1,599,800X .6= 959,880

    7.82 times the original investment made overnight.

    Is my math right? This is assuming all the calls were picked up for 60 cents a share. Maybe they might have been purchased at a lower price.

    CALL OPTIONS Expire at close Fri, Apr 20, 2007

    Strike Symbol Last Chg Bid Ask Vol Open Int
    20.00 FDCDD.X 6.50 0.00 N/A N/A 1 13
    22.50 FDCDX.X 2.50 0.00 N/A N/A 2 99
    25.00 FDCDE.X 2.00 0.00 N/A N/A 78 4,347
    27.50 FDCDY.X 0.60 0.00 N/A N/A 2,398 15,998
    30.00 FDCDF.X 0.15 0.00 N/A N/A 642 2,627

    PUT OPTIONS Expire at close Fri, Apr 20, 2007

    Strike Symbol Last Chg Bid Ask Vol Open Int
    22.50 FDCPX.X 0.05 0.00 N/A N/A 125 236
    25.00 FDCPE.X 0.25 0.00 N/A N/A 65 21,628
    27.50 FDCPY.X 1.25 0.00 N/A N/A 110 1,027
    30.00 FDCPF.X 3.30 0.00 N/A N/A 35 295
  3. Thanks for the info.

    I think there was a blurb in the WSJ about "buyout rumors"

    So I guess that a lot of it was sharp traders (not me :() guessing, or seeing the activity and jumping on board.

    But there had to be a leak somewhere!

    What's the chance that somebody gets in trouble for trading non-pub info?

    ZERO. :p
  4. Those rumors have been going around for a week at least.
  5. NOW you tell me! :D

    Would have been worth investing in a couple OTM calls. I gotta start listening better...

    Good trading to all. :cool:
  6. Some chatter about this:


    "April 2, 2007, 6:08 pm
    First Data Pre-Deal Trading ‘Stinks to High Heaven’
    Posted by Dana Cimilluca
    It isn’t just buyout firms that are getting rich off LBOs these days. A lucky few investors are hitting the jackpot by placing timely bets ahead of the deals. See Harrah’s Entertainment, Freescale Semiconductor, HCA and now First Data.

    Both the options and the credit default swaps of the payments processor had some funky movements ahead of today’s announcement. (There were no press leaks before the Wall Street Journal and New York Times broke the story last night.) The cost to insure $10 million of First Data bonds from default surged to $104,000 a year on Friday, up 58% from just two weeks earlier, according to Markit Group data. The contracts more than doubled today to $210,000 as all that new debt from the buyout will increase the risk of default — and the cost to insure against it.

    Meanwhile, according to Optionmonster.com (subscription needed), a Web site that analyzes options trading, the volume of call options on First Data stock surged several days in March to 10 to 18 times the February average of about 1,800 contracts. That prompted Jon Najarian of Optionmonster to exclaim: “The First Data deal stinks to high heaven of something leaking prior to the deal being done.” By analyzing the trading data, he estimates someone reaped $9.4 million ahead of the deal playing in its call options alone.

    Lest anyone accuse Deal Journal of cynicism, we are aware that there could be an innocent explanation for all this. As our earlier post today points out, some analysts and investors have long speculated that the spinoff of Western Union last year set the stage for an LBO of First Data.

    Still, assuming there was more at play than a few prescient analysts and investors, chasing down any leakers may prove tricky for regulators – and maybe that’s why it’s so rare for anyone to get in trouble in these cases. There are seven banks financing and “advising” on this deal, and that’s a lot of lips.

    And from the He Oughta Know Dept.:


    "TheStreet.com TV Recap: Not So Fast on First Data

    By TheStreet.com Staff
    4/2/2007 1:46 PM EDT
    Click here for more stories by TheStreet.com Staff

    Jim Cramer believes some traders who bought calls on First Data (FDC - Cramer's Take - Stockpickr) "might have jumped the gun last week." Private-equity firm Kohlberg Kravis Roberts is buying the credit-card processing company for $29 billion, a premium of 26.4% per share over Friday's closing price.

    "I looked at the option volume, and the thing that really struck me is that it was so brazen," Cramer said on TheStreet.com TV's Wall St. Confidential Web video Monday. "There was no reason to be buying those calls other than if you had the inkling."

    Goldman Sachs came out with a "very important" note saying this whole industry could be slowing, he told Gregg Greenberg, the host of Wall St. Confidential. "The quarter for First Data was clearly not going to be great -- they are losing a lot of customers," Cramer said.

    Although people are calling the takeover natural, "that's completely untrue," he said. A takeover is natural when the cash flow is increasing, not decreasing, or when the company is cheap on an earnings basis, not expensive, Cramer explained.

    "First Data is a crummy company," he said. "They've done a lot to try to make the company better."

    Cramer said he hopes the government will look into the matter and freeze the assets until it figures out who knew about the deal and who didn't, given that the call-buying was so blatant.
  7. And another one from the WSJ:


    "First Data Trades Suggest Leak
    By Dana Cimilluca and Serena Ng

    Kohlberg Kravis Roberts & Co.'s planned acquisition of First Data Corp. is the latest example of a buyout deal that might have been leaked to some investors before it was announced.

    According to Options Clearing Corp., the volume of call-option trading in First Data, a credit-card processor, hit 80,000 contracts last week, more than double the level for all of February.

    Credit-derivative prices also surged. The cost to insure $10 million of First Data bonds from


    Yeah, I know, just biz as usual on The Street. But is it too much to ask for blatant criminal activity to be policed? Sigh, just a starry-eyed dreamer...