Buying options to control a company?

O

optionsgirl

Well people still can't stop talking about Porsche and the VW short squeeze. However, I am wondering if it is legal in the US to secretly acquire a controlling stake in a company by slowly trading options. It seems like this is a cheaper alternative to the aggressive hostile takeover, but this is a rarely used technique of acquisition in America. Are Americans just impatient or is this too impractical?

This another hare-brained idea: I wonder if it is possible/legal to be a market maker of the company (in options and equity) that you plan to acquire...
 
I believe Porsche used privately negotiated options to take control of Volkswagen. I imagine that if an investor were to buy options on the open market, they would have to buy so much that it would come to other traders' attention (sudden increase in open interest) and make it difficult to buy at a low price.
 
Porsche indeed used OTC options. Option exchanges have position size limits so I doubt there's a way to acquire a meaningful stake using exchange-traded options. Besides, as the previous person noted, such transactions would attract attention.
 
Quote from optionsgirl:

Well people still can't stop talking about Porsche and the VW short squeeze. However, I am wondering if it is legal in the US to secretly acquire a controlling stake in a company by slowly trading options. It seems like this is a cheaper alternative to the aggressive hostile takeover, but this is a rarely used technique of acquisition in America. Are Americans just impatient or is this too impractical?

This another hare-brained idea: I wonder if it is possible/legal to be a market maker of the company (in options and equity) that you plan to acquire...
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Can't be done. Read the SEC regulations regardinging ownership and filing requirements - Rule 13d.

"i.A person shall be deemed to be the beneficial owner of a security, subject to the provisions of paragraph (b) of this rule, if that person has the right to acquire beneficial ownership of such security, as defined in Rule 13d-3(a) within sixty days, including but not limited to any right to acquire:


A.through the exercise of any option, warrant or right;


B.through the conversion of a security;


C.pursuant to the power to revoke a trust, discretionary account, or similar arrangement; "
 
You cannot secretly acquire a company that is publicly traded.
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Well, I didn't mean complete acquisition. I meant controlling stake. The article I read indicated that 75 percent of the shares is usually needed to control a company in Germany. I don't know what is the required percentage in the US, but it would be difficult to obtain controlling power stealthily with the 60 day time frame and 5% share limit. I think Porsche's scheme could possibly bypass the SEC's rule 13d if it was done here because they were cashed settled options. The institutions had to deliver the cash value of the stocks and not the stocks themselves.
 
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