Insider Trading Suspected Ahead of Hilton Buyout

Includes: BX, HLT-OLD
by: Judith Levy

Shares of Hilton Hotels Corp. rose 6.44% to close at $36.05 Tuesday -- ahead of the announcement of the company's sale to the Blackstone Group for approximately $20 billion in cash. After the close, Blackstone said it would pay $47.50 per share for Hilton, a 32% premium. The pre-news rise -- the shares' strongest surge since 2005 -- has prompted calls of insider trading. Options volume also surged Tuesday to 9x the 20-day average. August $40 calls surged 8x to $0.85 while July $30 puts shed 67% to a nickel. Implied volatility -- which indicate expectations of big moves in the underlying stock -- surged to 40.87%, its highest since October 2005. The SEC has been increasing its scrutiny of insider trading: it sued a Hong Kong couple in May for trading ahead of Rupert Murdoch's $5 billion offer for Dow Jones, and is investigating suspect trading at other companies ahead of buyout offers, including TXU Corp. HLT 05 July 2007 Blackstone 05 07 2007 ChartThe Hilton acquisition, which totals $26 billion including debt, is "a classic Blackstone play," according to money manager Michael Pralle, because of its "size, the asset class, the management and the brand." The deal has raised speculation that Marriott and Starwood might be takeover targets as well.

Sources: Bloomberg I, II, Wall Street Journal I, II
Commentary: Share, Options Movement Leading Up To Hilton Buyout Reeks of Insider TradingFor a 40% Premium, How Could Hilton Hotels Say No To Blackstone?Blackstone, While Buying Up the World, Adds Hilton Hotels
Stocks/ETFs to watch: Hilton Hotels Corp. (HLT-OLD), The Blackstone Group L.P. (NYSE:BX). Competitors: Marriott International Inc. (NYSE:MAR), Intercontinental Hotels Group plc (NYSE:IHG), Starwood Hotels & Resorts Worldwide, Inc. (HOT). ETFs: PowerShares Dyn Leisure & Entertainment (NYSEARCA:PEJ), iShares Morningstar Mid Growth Index (NYSEARCA:JKH)
Conference call transcripts: Hilton Hotels Q1 2007

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