A jump in options call trading for 3Com in the hours leading up to HP's announcement of a $2.7 billion bid for networking company 3Com is prompting SEC regulators to investigate whether there was insider trading, according to Bloomberg. In addition, 3Com faces two shareholder lawsuits from investors who say HP's offer is too low. HP is hoping to adding 3Com to its networking business to better compete with Cisco.
Federal regulators reportedly are investigating whether there was
illegal inside trading connected to Hewlett-Packard's $2.7 billion bid
for networking company 3Com.
According to a report by Bloomberg
options call trading for 3Com jumped in the hours before HP announced
the offer, at one point growing to 17 times its average over the
previous four weeks, and marking a 26-month high in trading activity.
Quoting an anonymous source, Bloomberg reported that the Securities
and Exchange Commission is investigating whether someone profited
illegally from inside knowledge of the deal before it was announced.
Click here to see what HP would gain by buying 3Com.
The report said that the SEC regularly monitors options call trading
as an indicator of potential insider trading. Call options can mean
that someone has the right to acquire stock at a given price by a
particular date, and reportedly lead to high returns for traders
speculating about possible acquisitions.
HP on Nov. 11 announced its intention of buying 3Com, which analysts
said would help HP fill some holes in its ProCurve networking
offerings. In particular, HP would gain 3Com's core data center
switching products, which would help HP in its growing competition
against networking giant Cisco Systems. HP also would gain 3Com's
TippingPoint network security subsidiary, and would get greater
traction in the rapidly growing Chinese market, where 3Com is
Apparently not everyone is happy with the deal. 3Com reportedly
faces separate shareholder lawsuits filed in Delaware and Massachusetts
by investors who argue that HP's proposed $2.7 billion bid is not high
3Com has 5,800 employees worldwide, and generated $7.5 million in profit on $290.5 million in revenues in the third quarter.