The SEC has issued a temporary restraining order on several as-yet unidentified accounts for trading in TXU Corp. call options that started on February 21 -- two days before word reached the Street that the Texan electrical utility was going to be sold to private equity firms, and five days before the deal was officially announced. The SEC alleges the traders bought 8,020 TXU call option contracts between February 21 and February 23 on "material, nonpublic information" that earned them $5.4 million in profits. The court order freezes those assets, orders the investors to identify themselves and forbids them from destroying any financial records. The unidentified purchasers bought the options through foreign brokerages Credit Suisse, Fimat Banque Frankfurt Zweigniederlassung and UBS AG. Trading in TXU call options septupled on Feb. 23; options trader Jon Najarian classifies the purchases ahead of the official announcement "textbook insider trading." TXU shares gained almost 14% on February 26, the day the deal was made public. If the transaction is completed, TXU will be bought for $45 billion, making it the biggest LBO in history. The intended purchasers are a group led by Kohlberg Kravis Roberts and the Texas Pacific Group.
Sources: Business Week, Forbes, Bloomberg, Reuters, MarketWatch, Wall Street Journal
Commentary: TXU Smoothes Path for Biggest-Ever Buyout • TXU Acquisition: Are Investors Succumbing To Short-Term Thinking? • TXU Soaring: Largest Leveraged Buyout in U.S. Corporate History At Hand
Stocks/ETFs to watch: TXU Corp. (TXU). Competitors: American Electric Power Co. Inc. (NYSE:AEP), Centerpoint Energy Inc. (NYSE:CNP), Reliant Energy Inc. (RRI). ETFs: Utilities HOLDRs (NYSEARCA:UTH), Vanguard Utilities ETF (NYSEARCA:VPU), Utilities Select Sector SPDR (NYSEARCA:XLU)
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