News Monday morning from semiconductor land, via the FT:
Renesas Electronics is to buy Apple supplier Dialog for €4.9bn in the latest deal by the acquisitive Japanese group aimed at expanding its chip portfolio beyond cars.
Shares in Renesas, one of the world’s largest suppliers of automotive chips, fell as much as 6.9 per cent on Monday on concerns about its stretched balance sheet after a $10bn buying spree during the past four years.
The all-cash offer for the Anglo-German semiconductor specialist is priced at €67.50 a share — a 20 per cent premium to Dialog’s closing price on Friday and 52 per cent above its average trading price for the previous three months.
Yet looking at the call option activity last week, it seems someone knew something was up already.
In case you’ve been living under a financial rock for the past fortnight, a call option is a derivative that gives the buyer the right to purchase shares in a company at a set price (the “strike price”) by a certain deadline. In effect, it's a levered bet on a large share price move, particularly as the derivatives tend to be cheap to buy when the strike price is far above where the underlying shares trade, and the expiration date of the call option close. Often, the options expire worthless, making them a risky bet versus the vanilla equity.
Unless, of course, the buyer knows a material share price move — say, news of a deal for the company in question — is incoming.
To that point, here’s the volume of February 19 calls with a €54 strike price traded over the past two and half months. Renesas’s offer for Dialog, remember, is at €67.50 a share, and the shares opened on February 1 at €52.50. The shares, at pixel, are trading at €65.34.
FT Alphaville also notes that on Friday, the last trading day before the announcement, the €57 call traded 510 contracts — the first trade of the year — and the €60 call found 310 buyers. Both expire on February 19. (Thanks to @Wall_E_1976 for pointing this out on Twitter.)
While some might say this activity is normal, given the shares have been trading in the low 50s since mid-January, the fact that buyers only came in bulk at the beginning of last week is, at the very least, worthy of discussion.
We’d like to say the local regulators will probably want to speak to those involved in this unusual option activity, but given Dialog is listed in Frankfurt — and therefore under the auspices of BaFin — we’re not holding our breath.
Update: a BaFin spokesperson told FT Alphaville:
BaFin, as a matter of routine, monitors the trading movements in the course of the merger of Renesas and Dialog.
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Dialog/Renesas: just give me a call - Financial Times
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