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Halftime: What Options Suggest About Tyco Takeover Talk

Schneider Electric is reportedly working on a deal to buy U.S. manufacturing conglomerate Tyco International, The New York Post reported Friday.

While a Tyco spokesman declined to comment, a Schneider Electric spokesman said no deal was in the works. To options trader JJ Kinahan, unusual options activity in Tyco suggests no deal is on the table.

When it's reported a company could be bought out, Kinahan said there are usually a lot of call buyers. But immediately following the Tyco report, there were a lot of put buyers. Options traders quickly bought the May 50 and June 49 puts when the stock was flirting with its highs early Friday. Traders are now buying the July 55/60 call spread, as well as the October 55/60 call spread.

This options activity suggests the takeover story will be short-lived, Kinahan explained. If the deal fades, it's going to fade quickly. So Kinahan said the options market doesn't put much merit into the takeover reports.

Yet the newspaper, citing two unnamed sources, reported that Schneider was in talks with public equity firms to make a bid that could top $30 billion.

The Post added that the company not yet determined which private equity firms it would team up with if it were to make an offer. It also said it is possible private equity bidders would work on their own, without Schneider.

A bid of $30 billion would represent a 29 percent premium to Tyco's current $23.2 billion market capitalization.

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