Monday, June 18, 2007

Anheuser-Busch - No Tear In My Beer (BUD)

Anheuser Busch (BUD) remains on my radar. I own the July 55 calls which jumped 47% today to close at $1.40 bid - only problem is that I bought them at $1.20 last week, rode them down through expiration and now at least have my head a bit above water. The stock was up as much as 3% on no news. There has been speculation that BUD could become the target of activist investor William Ackman who has indicated a company about the size of BUD ($41 bln market cap) would be just right for him to take on. Rumors have also swirled that billionaire investor Warren Buffett might find BUD attractive, or that a larger global brewer could make a bid.

What ultimately happens is still in our future, but bulls have targeted BUD by buying large quanties of call options, especially calls that expire in July - meaning they're looking for something to happen sooner rather than later. Open interest on the July calls totals over 52,000 contracts, while put open interest for July totals 9,723. The options are also priced to factor in potential news with implied volatity at 24.6 vs historic volatility of 20%.

The real test for me is whether BUD can break above the $55 critical point of reference. The air above $50 has proven notoriously too thin in the past (which is why BUD could be ripe for an activist shareholder since this is a problem that dates back to 2002). Now that we appear to be making a run for $55, if we can't break above, I'll be out of those options; but a run above $55 on strong volume would be a positive momentum indicator and a signal that rumors could be about to turn to some sort of reality. It's put up or shut up time again for BUD shares.
By the way, beer and my kidney transplant anti-rejection meds don't mix, but a visit to BUD's Busch Gardens Das Fest Haus is always a great time in Williamsburg, VA. Knockwurst and Prograf? No problem!

No comments: