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  • busy26795 busy26795 Jul 1, 2014 8:06 AM Flag

    LO 'Lorillard Bulls Light Up on Reynolds Deal Speculation' Bloomberg article

    LO Lorillard Bulls Light Up on Reynolds Deal Speculation

    Speculation that Lorillard Inc. (LO) will strike a deal with Reynolds American Inc. (RAI) is heating up the options market.

    Demand for bullish calls on Lorillard, the maker of Newport and Maverick cigarettes, reached a four-year high last month relative to puts, according to data compiled by Bloomberg. Short sellers have abandoned the stock during a 20 percent rally this year, leaving bets on declines at a one-year low, data from Markit Securities Ltd. show

    Reynolds explored the purchase of Lorillard for several months with its efforts stymied by the complexity of a potential agreement, people with knowledge of the matter said in May. Imperial Tobacco Group Plc’s decision to sell assets in Spain may alleviate antitrust concern between the biggest sellers of tobacco after Altria Group Inc. (MO)

    “It wouldn’t surprise me if something gets announced soon,” Bonnie Herzog, an analyst with Wells Fargo & Co. in New York, said in a phone interview yesterday. “There’s no question that you have tremendous synergies and cost savings.”

    Traders have increased ownership of bullish options as Lorillard rallied, and now own 1.1 calls for every put, the highest ratio in a year, data compiled by Bloomberg show. Among the eight contracts with the highest ownership, six were calls.

    Sentiment: Strong Buy

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