Shares rose before news of Hilton sale
Shares and call options of Beverly Hills-based Hilton Hotels Corp. jumped before the company’s announcement Tuesday of its sale to Blackstone Group, raising concern that news of the deal might have leaked.
The Securities and Exchange Commission is stepping up investigations of suspicious trading ahead of takeover agreements, which are running at a record $2.7 trillion worldwide so far this year.
The SEC sued a Hong Kong couple on May 8, claiming they traded on inside information about News Corp.’s $5-billion offer for Dow Jones & Co. made on May 1.
The agency also is probing pre-deal trading in shares of other recent buyout targets, including utility giant TXU Corp.
Hilton stock surged $2.18 to $36.05 on Tuesday in the market’s abbreviated trading session ahead of the Fourth of July holiday. Later that day the company said it had agreed to be bought by Blackstone for $47.50 a share, or $26 billion in all.
The 6.4% jump in the stock ahead of the announcement was its biggest gain in more than 18 months.
The rise in the stock price suggests that word of the transaction “leaked prematurely,” said Scott Moeller, a professor of mergers and acquisitions at Cass Business School in London. “The parties may have had to announce the deal before they intended.”
But the stock may have gotten its lift from a report early Tuesday by an analyst at brokerage Jefferies & Co. Analyst Jeffrey Klatzin named the stock a “pick of the week,” saying it was undervalued.
Trading in July and August call options to buy Hilton stock also surged Tuesday, as did the prices of the options. Call options give investors the right to buy the stock at a certain price by a set date.
It’s generally illegal for someone involved in a corporate buyout to trade on that information ahead of the announcement to public investors. Others who may find out about a takeover in advance also can be charged with fraud, depending on how they got the information.
Hilton spokeswoman Linda Bain declined to comment on the stock’s move, citing company policy against discussing trading activity.
She said the announcement of the deal “went out as soon as the board had made their recommendation.”
A Blackstone spokesman in New York declined to comment.
Separately, Hilton shares traded in Frankfurt, Germany, soared on Wednesday and closed above the value of Blackstone’s bid, suggesting that some investors believe another bidder could emerge or that Blackstone may have to raise its offer.
The stock rose 47% to close at 37.01 euros, the equivalent of about $50.37, or 6% above the value of Blackstone’s offer.
But the action in the stock today on the New York Stock Exchange, when trading resumes after the holiday, is likely to be more telling as to whether traders believe the company could attract another offer.
