Genentech (DNA, $98.53, up $0.68) will not win an academy award for its efforts in “evaluating” take-over offers but give the company credit for at least trying. The “special committee” that has been evaluating the $44 billion bid from Roche said this morning that the deal “substantially undervalues” the company and has been rejected.
This was no surprise as Genentech went on to say it “would consider a proposal that recognizes the value of the company and reflects the significant benefits that would accrue to Roche as a result of full ownership.” The language Genentech is using is sounding like a friendly deal could happen but it’s clear the company is holding out for a $100+ offer.
The August 95 calls (DWNHS, $3.60, up $0.85) continue to do well from an entry price of $1.50 and I mentioned you could ride them through Friday. However, we had set a stop of $3.00 so we were taken out yesterday. The August options expire Friday so make sure if you are still in the trade to close it before the trading session ends.
The September 100 calls (DWNIT, $2.95, up $0.45) were profiled at $0.65 and we have set a stop of $2.00-$2.25. The options closed at $2.50 yesterday so let’s make the $2.25 stop a firm one. I want to allow some room for volatility but I really don’t want the stop to kick in on this one. Genentech continues to set new highs and we want to ride the wave as long as we can.
Meanwhile, we closed half of the ImClone (IMCL, $64.00, down $0.51) August 45 calls (QCIHI, $19.50, down $0.15) at $19.00 on 8/1 and set a stop of $18.00 on the rest. These calls were profiled at $2.40 and our return is something even Michael Phelps would envy. These options also expire this Friday so we will go ahead and just close this one out today.
I believe both firms will get higher offers but as always it depends on timing. If Genentech continues higher from here, the September 100 calls should continue to do well. As for ImClone, I’m not sure if there is another good trade out there for us or not. I’ll take a look at the option chains and run some figures but for now we will just go with Genentech.
Rick Rouse
Rick@OptionsMentoring.com












M&A Heats Up
Monday, March 1st, 2010
1:00pm (EST)
The bulls came out in a buying mood this morning as mergers and acquisitions (M&A) activity continues to pick up and more information about a possible European bailout of Greece has lifted the market.
At midday, the Dow is up 80 points, or 0.8%, to 10,404, while the S&P has climbed 10 points, or 0.9%, to 1,114. The Nasdaq is showing the most strength as the index is up 31 points, or 1.4% to 2,270.
We mentioned the AIG (AIG, $26.30, up $1.53) news this morning and in other M&A activity, OSI Pharmaceuticals (OSIP, $56.41, up $19.39) is up a whopping 52% after getting a buyout offer from Japanese drugmaker, Astellas Pharma. The $3.5 billion takeover offer for OSI Pharmaceuticals is being presented directly to shareholders after being rebuffed several times by executives at OSI.
We saw some action in shares of OSI last week but we didn’t think a buyout was right around the corner. Too bad. The March 35 calls (GHU100320C00035000, $20.90, up $18.70) are up 850%…
In economic news, the Commerce Department said personal spending rose 0.5% in January. Wall Street was looking for an increase of 0.4%. However, personal income edged up 0.1%, below the 0.4% forecast by the pencil pushers. It was the slowest growth in income in four months.
Meanwhile, the Institute for Supply Management (ISM) said its manufacturing index fell to 56.5 in February from 58.4 in January. Wall Street was looking for a print of 58. The one silver lining was that the report sees manufacturing employment improving. The ISM releases its services industries index on Wednesday.
Before we go, we thought we would mention the strength Sandisk (SNDK, $31.95, up $2.80) is showing today after the company boosted its first-quarter guidance to reflect more demand for memory chips. The 9% pop has the stock at a new 52-week high. Sandisk was on our Watch List but we just missed bagging a 200% return…
We have some other trades that are doing really well today but obviously we are disappointed we didn’t pull the trigger on Sandisk last week. Current subscribers, check the Members Area for the juicy updates.
Tags: Mergers and Acquisitions, option picks, option signals, options alerts, OSI Pharmaceutical, OSIP, Sandisk, SNDK, stock options trading
Posted in Company Commentary, Earnings, Market Analysis, Market Commentary, Mergers and Acquisitions, Option Trades | Comments Off