Trading in options to buy shares of Harley-Davidson Inc. surged to a record on speculation that the biggest U.S. motorcycle maker may be acquired by Honda Motor Co., the world's largest maker of motorcycles.
A combined Harley-Davidson and Honda would command as much as 60 percent of the U.S. large motorcycle market, Tim Conder, an analyst with A.G. Edwards & Sons in St. Louis, said in a research note today.
The number of call options traded jumped to 49,848 contracts, an all-time high, as of 4 p.m. in New York, according to data compiled by Bloomberg. Volume hadn't exceeded 25,000 contracts since October 2005. The most active call, which gives investors the right to purchase Harley-Davidson shares at $70 by July 21, rose sevenfold in price to 35 cents. Earlier, it jumped 10-fold.
``There are rumors of a potential takeover,'' said Frederic Ruffy, an options analyst at Redwood City, California-based Optionetics.com. ``Investors think it's credible. They expect an announcement in the short term and a big move in the stock.''
Conder called the speculation ``false'' because an offer from Honda may not survive U.S. Federal Trade Commission scrutiny and a merger might ``alienate U.S. customers.'' The analyst has a ``hold'' rating on Harley-Davidson shares.
Bob Klein, a spokesman for Milwaukee-based Harley-Davidson, declined to comment. Honda spokesman Jon Seidel didn't immediately return a voice message seeking comment.
The company's shares rose the most since October, adding 4 percent to $62.55 in New York Stock Exchange composite trading. They touched $63.99 earlier.
Traders ``are looking to get as much leverage as possible'' by buying contracts that expire next month -- the July calls --at a so-called strike price that's more than $7 higher than Harley- Davidson's share price, Ruffy said. ``That's a sign they expect something soon because it would take a major announcement to push the stock up to $70.''
Interesting. But US Federal Trade Commission aside (as well as equally nosy European regulating bodies) , there's something in the rumor that escapes me. And/or whoever decided to broadcast it. And that is the fact that today Honda is predominantly (talking unit volume, plant capacity, financial turnover et all), a CAR maker, and a successful one at that, with a motorcycle business legacy on the side
This is the Wall Street equivalent of a scam. Harley itself is behind this rumor and hopes "the Faithful" will respond by snapping up shares to fend of Honda. But who does that benefit, especially when the alleged takeover by Honda never materializes? Lagging sales of HD bikes are surely the culprit here.
Investors should use facts and not rumors. I would have to devalue both Harley's stock rating and price. Where there is smoke... the big question is, where is the fire.
Well, after the recent option-driven surge, HOG is down to around $ 60 a share. Unless I am mistaken, that's a YTD decline of 14.9%. Resulting, trailing P/E ratio is around 15.7 which, to me, suggests that the stock is correctly valued at today's price.
My bet, if a takeover is going to take place, is that an investment fund/private equity company would be a more likely snatcher than Honda.
That is pretty astute. Why would Honda want to acquire HD anyway? Honda is a technology company, HD is a prehistoric company. Granted, HD lives on as a legend but if someone offered me a Road King or a Goldwing to use for a year, I'd take the Gold Wing.
HD's market share is slowly eroding whereas Honda's marketshare is increasing. It really makes no sense other than to eliminate competition that really isn't competition at all.