Trading in Sprouts Farmers Market ahead of report on merger raises eyebrows

Mon Mar 20, 2017 2:39pm EDT
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By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Trading in Sprouts Farmers Market Inc's (SFM.O: Quote) shares and options surged last week ahead of a report that the natural-foods retailer was the subject of merger talks, raising questions about whether news of a possible deal was leaked.

On Sunday, Bloomberg reported that the Cerberus Capital-backed food and drug retailer Albertsons Cos had held preliminary merger talks with Sprouts in recent weeks. Sprouts shares rose about 5 percent on Monday, before reversing course to trade down 1 percent at $21.79.

The swings Monday in trading of Sprouts shares come on the heels of a surge in its stock price on Thursday and Friday, and a record-breaking rush of trading in its options.

Representatives for Albertsons and for Sprouts did not immediately respond to requests for comment, while a spokeswoman for Cerberus declined to comment.

"I expect regulators will look into the (options) activity," said Henry Schwartz, president at options analytics firm Trade Alert.

Sprouts shares, which touched an 18-month low on March 7, rallied 11 percent on Thursday, with roughly half the gains coming in the last hour of trading. Nearly 9 million shares changed hands in the final hour of trading on Thursday, making it the busiest hour of trading in at least a year.

At the same time in the options market, the last hour of trading saw roughly 15,000 contracts, or about 14 times Sprouts' average daily trading volume, change hands, Trade Alert said.

By Monday, the number of open call contracts on Sprouts' shares jumped to 31,687, a 16-month high, per Trade Alert.   Continued...

A billboard advertisement for Sprouts Farmers Market, a health food chain store, is shown in Encinitas, California September 9, 2014.  REUTERS/Mike Blake