Lubrizol Call-Options Volume Surged Before Berkshire Hathaway's Buyout Bid

Trading of bullish Lubrizol Corp. (LZ) options surged to the highest level in a year on March 9, before Berkshire Hathaway Inc. (BRK/A)’s offer today to buy the world’s largest producer of lubricant additives lifted the shares 28 percent.

Call trading surged to 2,931 contracts on March 9, and open interest for the April $110 calls jumped to 2,654 from 41. A block of 2,168 April $110 calls traded for $2.35 each on March 9, data compiled by Bloomberg show. Lubrizol’s four-week average trading volume is 413. The April $110 calls advanced almost 11- fold to $24.70 today. The Wickliffe, Ohio-based company surged 28 percent to $134.68.

“That is more than suspicious,” said Ophir Gottlieb, head of client services at Livevol Inc., a San Francisco-based provider of options market analytics. “It looks like a naked purchase of calls, and that’s highly suspicious if not straight insiders trading.”

Berkshire, owned by billionaire Warren Buffett, today agreed to buy Lubrizol for about $9 billion in the investor’s second-biggest acquisition in the past five years. Berkshire will pay $135 a share in cash, 28 percent more than Lubrizol’s closing price on March 11, the Omaha, Nebraska-based company said in a statement today. The purchase includes an additional $700 million of net debt.

Calls for Comment

Julie Young, a spokeswoman for Lubrizol, didn’t immediately return a call for comment. Buffett didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer.

Citigroup Inc. (C) and Evercore Partners Inc. (EVR) were financial advisers to Lubrizol, while Jones Day was legal counsel. Munger, Tolles & Olson LLP was legal counsel for Berkshire.

Danielle Romero-Apsilos, a spokeswoman for Citigroup, and Dana Gorman, a spokesman for Evercore, declined to comment. Mary Ann Todd, the lead partner at Munger, and Dave Petrou, a spokesman for Jones Day, didn’t immediately return calls.

Lubrizol call volume rose to a record today. More than 20,000 calls changed hands, 49 times the four-week average and five times the number of puts to sell. The most-traded contracts were the September $135 calls, which accounted for more than four-tenths of all call volume. A block of 2,650 April $110 calls traded at 9:51 a.m.

Calls give the right to buy 100 shares of a security for a certain amount, the strike price, by a set date. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.

To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Cecile Vannucci in New York at cvannucci1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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