DAK, I hear you, and even agree, to a large extent. If you ask someone on on the sell side a question, you will almost always get an answer. Few will say, that's a stupid question or just say, I don't know. So I think the press does get misled. Eisinger seems to be a bit different and better. His articles are infrequent and always try to provide insights as to what is being said on both sides of an issue.
At any rate here is the entire article.
Centocor Calls Crackling on
Rumors
By Erin Arvedlund and Jesse Eisinger
Staff Reporters
4/21/99 2:40 PM ET
Rumors that biotechnology company Centocor (CNTO:Nasdaq)
was on the block hit the company's stock and options like a fireball
on an otherwise middling trading day.
Centocor shares rocketed 18% to 41 5/8 on nearly four times
normal volume. Its call options, particularly the May 45 calls, saw
heavy buying this morning, traders said.
Centocor representatives weren't immediately available for
comment.
At midday, May 45 calls were up 1 3/4 ($175) to 1 7/8 ($187.50) on
volume of 1,588 contracts, compared with open interest of just 386
contracts. The rising premiums show investors have little regard for
price and want to jump into any rise precipitated by a rumored deal.
Johnson & Johnson (JNJ:NYSE) was the rumored suitor of the
day.
Traders in the Centocor pit said the rumor was "all over the desks"
on Wednesday, though one in Chicago added that "people could
be just guessing, especially because Eli Lilly (LLY:NYSE) is a
more logical choice."
"Lilly has said in the past that they liked the relationship with
Centocor as it stood," one Philadelphia options trader said.
"Options activity may be following the rumor; it didn't create the
rumor," said Michele Skupp, half of the Siedman-Skupp options
team at Miller Tabak Hirsch. "I don't think it's classically odd
activity that would be associated with a takeover." If Johnson &
Johnson is the suitor, as the rumormongers are guessing, its stock
is trading "a little rich for the occasion," she said.
Johnson & Johnson stock neared its 52-week high of 99 11/16,
gaining 2 1/2 to 98 3/4 on slightly heavier-than-normal volume.
One of Centocor's key products is ReoPro, a drug used to prevent
blood clotting in patients undergoing angioplasty. In the latest
period, Centocor's sales of ReoPro to its marketing partner Lilly rose
27% to $58 million. Lilly reported that total sales of the drug rose
44% to $101 million.
"The options are trading as they should, wagering about a 50-50
chance Centocor will get bought," said the Philly trader. "Let's face
it. Big drug companies don't buy second-tier biotechs if they don't
have to. But that doesn't mean it won't happen."
Meantime, professionals were somewhat skeptical that a Centocor
deal was imminent. "The rumor has spread so far around the
Streeet, I have to believe it's a short squeeze," said one hedge
fund manager who requested anonymity.
But there is a feeling that Centocor and many of its biotech brethren
are on the block and that the investment banking community is
shopping M&A packages because investors don't have the
appetite for further equity offerings. |
