Caution Brewing in Teavana-Starbucks Merger?

Retail

Published: November 19, 2012 11:43 am

Last Updated: April 27, 2020 6:38 pm

Is there something to worry about in this acquisition of Teavana Holdings, Inc. (NYSE: TEA) by Starbucks Corporation (NASDAQ: SBUX)? The deal is expected to close since the votes for it are effectively in hand. So why are the put options so active today? This might lead some investors to wonder if the buyout price could fall apart or if the minority group of common holders might have a trick up their sleeve to either demand a higher price or to even block the deal.

As of 11:30 PM EST we have seen some 21,500 of the December 2012 puts trade hands. That represents more than 2 million shares on a fully leveraged basis and it is against an open interest of only 4,571 contracts. Before the impact of this merger last week, the last time Teavana traded over 1 million shares in a single day was way back on May 30, 2012 when shares collapsed down to $13.78 from $16.81.

It appears that some hedges are being put in place. Maybe it is a just in case, and perhaps some investors are making bets on the cheap. We would point out that the public shareholders here may have very little power to block a deal regardless of this price being well under its post-IPO peak. Starbucks has previously said that some 70% of the Teavana shares have approved the merger, which we noted was due to such a large share of insider ownership.

Teavana shares are flat on the day at $15.45 against the $15.50 buyout price. As of now we have not even heard any rumors about the deal. Still, this is very unusual put option trading activity that has been seen.

JON C. OGG

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