3PAR Inc. [PAR:NYSE] has found itself caught in the middle of a war, but unlike most times, this has proven beneficial. A week ago, the company announced that Dell [DELL:NDQ] was planning to buy them out for $1.1 billion. Shares surged from under $10 to $18. Then, late last Friday, Hewlett-Packward [HPQ:NYSE] announced it was going to buy the data-storage system for $1.6 billion, or $24 a share. Shares surged once again, to nearly $27 on speculation that Dell would raise its bid and has three days to make a new offer (from Aug 25).
Both Dell and HP have billions of dollars in cash laying around, so a bidding war is anticipated, especially since both companies want to compete with IBM and others.
So what can a trader like you do to profit? With $24 a share a near guarantee on the valuation, consider buying in-the-money September calls to replace the purchase of the underlying security. The Sep 20 calls have almost no time value to worry about, and a final number is expected in the next few days. If Dell decides not to make a move, the most one can lose as of today is $2.60 a contract (or share if equity bought). And rumours are circulating that the $24 a share may be bumped by 3PAR management, with an average estimate from 9 brokers of $29 a share, representing a 7.5 per cent premium. And to the option trader, a profit of around 35 per cent.
Note: these figures are based solely on current available information and speculative information. These figures are not guaranteed and likely to change if a new bid is placed by Dell lower than $27/share or HP decides not to negotiate with 3PAR from its current bid of $24/share.
Due to the speculative nature of this trade, highly consider its risks with your financial advisor before implementing any strategy or similar strategy discussed within this post.
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