It is not surprising that Heinz (HNZ) stock jumped 20% in Thursday's trading following news that Berkshire Hathaway and the investment firm 3G Capital would be taking the company over.
Berkshire Hathaway and the investment firm 3G Capital will pay $72.50 a share for Heinz, so it was no surprise to see the stock quickly jump to that level. What has raised concern is some unusual option trading that took place in the stock leading up to the buyout announcement.
The unusual spike in options trading were first noticed on Wednesday, the day prior to the $23 billion takeover's announcement. The focus is placed a spike in call volume the day before the announcement.
An SEC investigation could center on 3G Capital. A similar situation arose in September when a Brazilian firm had its assets frozen in connection to trading activity surrounding 3G's buyout of Burger King. In this case the SEC froze the trader's assets, but so far there have not been any charges made against anyone at 3G.
The reality is that insider information gets exchanged. Everyone knows it happens, but proving it is a different story. And while this investigation is still just getting started, the fact that 3G is once again involved definitely raises concerns over the company's role in these high-profile buyouts.
At this point, nothing is official, but where there is smoke there is often fire. For the second time in six months we have seen unusual trading activity surrounding a 3G-orchestrated buyout. The SEC may not have brought charges against 3G in relation to the Burger King insider trading, but if it can make a solid connection to the company this time around, it may try to make an example out of the company.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors. Follow him on Twitter at @MFatMICenter.