Some chatter about this:
http://blogs.wsj.com/deals/2007/04/02/first-data-pre-deal-trading-stinks-to-high-heaven/
"April 2, 2007, 6:08 pm
First Data Pre-Deal Trading âStinks to High Heavenâ
Posted by Dana Cimilluca
It isnât 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 Harrahâs 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 todayâs 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 â 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: âThe First Data deal stinks to high heaven of something leaking prior to the deal being done.â 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 â and maybe thatâs why itâs so rare for anyone to get in trouble in these cases. There are seven banks financing and âadvisingâ on this deal, and thatâs a lot of lips.
"
And from the
He Oughta Know Dept.:
http://www.thestreet.com/_tscwrap/funds/realmoneyradiowrap/10348089.html
"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.
"
) guessing, or seeing the activity and jumping on board.
