Honeywell options pick up on takeover talk
Friday May 6, 6:29 pm ET
By Doris Frankel
CHICAGO (Reuters) - Investors piled into bullish call options on Honeywell International Inc. on Friday amid market talk United Technologies Corp. had renewed its interest in buying the rival aerospace and industrial conglomerate, options traders said on Friday.
Honeywell shares were also higher, rising nearly 5 percent in their biggest one-day gain in 16 months.
United Technologies said the rumor was not new.
"Every six months or so this rumor goes around," spokesman Paul Jackson said. "We didn't comment on rumor and speculation in the past and we're not commenting on rumor and speculation now."
A Honeywell spokesman also said the company does not comment on rumors or speculation.
Both companies are components of the Dow Jones Industrial average, which was higher during the Friday session in part due to gains by Honeywell shares.
"There is speculation that United Technologies might be buying Honeywell. It looks like traders are buying calls," said Rob Kovell, a trader at PEAK6, an options trading firm on the Pacific Exchange.
United Technologies first tried to buy Honeywell in 2000, but was outbid by General Electric Co. GE's deal to buy Honeywell fell apart in 2001 when the European Commission raised antitrust concerns that proved insurmountable.
Some analysts downplayed the rumor.
"United Technologies has made it clear that they're not interested in aerospace assets and that is the big chunk of Honeywell," said Thomas Leritz, portfolio manager with Argent Capital Management, which does not own either stock.
United Technologies Chief Executive George David previously said the company has earmarked about $4.5 billion for acquisitions this year, of which about $3.5 billion has already been spent.
A deal between Honeywell and United Technologies would be a good strategic play, but it could also run into some of the same problems gaining European regulatory clearance that Honeywell and GE faced, said William Alderman, president of aerospace and defense investment bank Alderman and Co.
"Pratt would get scrutiny," Alderman said in reference to United Technologies' Pratt & Whitney aircraft engine-making division. "But I think a merger between United Technologies and Honeywell is substantially more likely to get approved than the GE/Honeywell merger."
On Friday, a combined total of 137,984 options had changed hands on Honeywell -- dominated by 115,022 calls -- far outpacing its average daily volume of 2,285 contracts traded on U.S. options exchanges, according to market research firm Track Data.
Most notable were the calls that give the right to buy the stock at $37.50 by mid-May, said Stacey Briere, chief options analyst at Susquehanna Financial Group.
"There is unconfirmed market speculation that UTX will purchase HON," Briere said. "We can comfortably say that the rumor is out there and the calls are active, but which sparked the other is uncertain."
There were also buyers of June and September 37.50 and 40 calls, she said.
Honeywell shares closed up $1.68 at $36.85 on the New York Stock Exchange. They traded as high as $37.70 earlier in the session.
Trading in the stock was unusually heavy and the volume, 12.2 million shares, far exceeded average daily volume for the past month of just over 3 million shares.
United Technologies' shares were off 36 cents at $102.03 on the NYSE. (Additional reporting by Ben Klayman in Chicago and Julie MacIntosh in Philadelphia (Reporting by Doris Frankel, editing by Andre Grenon; Reuters Messaging: doris.frankel.reuters.com@reuters.net; doris.frankel@reuters.com; +1 312 408 8750))
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