Trading in options to buy shares of Harley-Davidson Inc. surged to a record on speculation that the biggest U.S. motorcycle maker may be acquired by Honda Motor Co., the world's largest maker of motorcycles.
A combined Harley-Davidson and Honda would command as much as 60 per cent of the U.S. large motorcycle market, Tim Conder, an analyst with A.G. Edwards & Sons in St. Louis, said in a note.
The number of call options traded jumped to 49,848 contracts, an all-time high, as of 4 p.m. yesterday in New York, according to data compiled by Bloomberg. Volume hadn't exceeded 25,000 contracts since October, 2005. The most active call, which gives investors the right to purchase Harley-Davidson shares at $70 (U.S.) by July 21, rose sevenfold in price to 35 cents.
"There are rumours of a potential takeover," said Frederic Ruffy, an analyst at Redwood City, Calif.-based Optionetics.com. "Investors think it's credible. They expect an announcement in the short term and a big move in the stock."
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Mr. Conder called the speculation "false" because an offer from Honda may not survive regulatory scrutiny and a merger might "alienate U.S. customers." The analyst has a "hold" rating on the shares.
Harley-Davidson spokesman Bob Klein declined to comment. Honda spokesman Jon Seidel didn't immediately return a voice message seeking comment.
The company's shares rose to $62.55 in New York.
Traders "are looking to get as much leverage as possible" by buying contracts that expire next month - the July calls - at a so-called strike price that's more than $7 higher than the share price, Mr. Ruffy said. "That's a sign they expect something soon because it would take a major announcement to push the stock up to $70."
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