Tags: SEC | Scrutinize | Heinz | Options

SEC Scrutinizes Surge in Heinz Options Before Merger

Thursday, 14 Feb 2013 04:29 PM

 

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U.S. Securities and Exchange Commission investigators are reviewing whether a surge in bullish bets on HJ Heinz Co. was fueled by inside information about Berkshire Hathaway Inc. and 3G Capital’s plan to buy the ketchup maker, a person familiar with the matter said.

Trading in Heinz call options, which give the right to buy the underlying shares and profit when the stock rises, increased Wednesday to the highest level since Jan. 31, data compiled by Bloomberg show. Heinz shares jumped 20 percent to $72.50 Thursday following the announcement that Warren Buffett’s Berkshire Hathaway and Jorge Paulo Lemann’s 3G Capital agreed to buy the Pittsburgh-based company for about $23 billion.

The agency’s review is in its early stages and a formal investigation may not result, according to the person, who asked not to be named because the matter isn’t public.

The SEC in recent years has sharpened its methods for linking people who make well-timed trades to those who might have access to confidential information about an impending merger or deal. Investigators have increasingly examined the buying and selling patterns of traders, looking for similar activity by other investors.

One recent SEC case involved another deal connected to 3G Capital. In November, a Brazilian ex-banker and his firm agreed to pay $5.1 million to settle SEC claims that he made illegal trades ahead of 3G’s 2010 acquisition of Burger King Holdings Inc. According to the SEC, Igor Cornelsen learned about the impending merger from a Wells Fargo & Co. broker, whose client had invested with 3G and knew about the acquisition.

In settling the matter, Cornelsen didn’t admit or deny wrongdoing.

Berkshire Hathaway and 3G will pay $72.50 a share, compared with yesterday’s closing price of $60.48, according to a statement today. Nearly 2,600 June $65 calls changed hands Wednesday for about $91,900, data compiled by Bloomberg show. The contracts, which have an exercise price 6.8 percent above the Feb. 12 close, were worth $1.99 million at midday Thursday in New York, creating a profit of $1.89 million.

© Copyright 2014 Bloomberg News. All rights reserved.

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