When Heinz (NYSE:HNZ) announced on Thursday that it had entered into an agreement with Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) and 3G Capital to go private, the deal drew widespread attention for its magnitude. The iconic ketchup brand will be acquired for $72.50 per share, setting the total value of the transaction at $23 billion — the largest acquisition in the food industry if it stands up to regulatory scrutiny.
And that’s a big if because the deal is now receiving the attention – and more worryingly, the scrutiny — of the U.S. Securities and Exchange Commission.
Early on Friday morning, reports circulated indicating that the U.S. Securities and Exchange Commission had begun investigating unusual trading activity on the day preceding the announcement. By the afternoon, those reports had solidified into fact. Reuters reported that the regulatory agency had filed a lawsuit against “certain unknown traders” in a Manhattan federal court.
Given the gusto with which the SEC has been pursuing insider trading over the past few years, inquiries into trading activity surrounding major deals is to be expected. What first attracted the attention of federal investigators was an abnormal increase in options trading activity on Wednesday. Using what is known as a call option, the traders named in the SEC’s lawsuit put a bullish bet on Heinz, without buying any of the company’s shares. These traders secured the opportunity to buy shares at a given price and a future date.