Hedge Fund Invests In Sony ... Recommends An IPO ... And Stock Soars

Insider Intrigue?

DANIEL LOEB'S hedge fund request that SONY spin off up to 20% of its entertainment division in an IPO (NET NEWS 5/14) has sparked a blowback from interested suitors and WALL STREET analysts alike. They believe, to paraphrase BOB DYLAN, that "Something is happening here, but they don't know what it is."

Yet.

REUTERS reports that SONY's stock market price soared almost 10% percent to close at $20.76 after DANIEL LOEB's THIRD POINT hedge fund acquired more than 6% of SONY's shares -- a stake worth $1.1 billion -- making it SONY's largest shareholder. However, the day before that announcement (on MONDAY, 5/13), trading volume in SONY options soared by more than seven times the average daily activity in the last three months. Volume in its stock rose to 6.1 million shares, more than doubling the average 2.7 million shares over the past 25 days.

"MONDAY's trading in SONY options appears suspicious, considering the extraordinary volume relative to their average and the bullish direction of those bets," said OPHIR GOTTLIEB, Managing Dir/Options analytics firm LIVEVOL. "There are those who now believe LOEB's position was leaked into the market."

The department of market regulation, CBOE HOLDINGS, does review unusual trading activity on a regular basis, but it does not comment on any specific situation. THE U.S. SECURITIES AND EXCHANGE COMMISSION, which also looks into unusual trading, had no comment on the goings-on -- nor was a representative for SONY immediately available for comment.

A Suitor Already?

Should SONY decide to sell off its entertainment assets, there is at least one more-than-willing suitor -- CBS CORP. The L.A. TIMES reports that CBS -- which predictably wouldn't comment on any speculation -- has said in the past that it would certainly look at any significant entertainment assets that become available. A merger of CBS and SONY PICTURES assets would create a media conglomerate on the scale of NBCUNIVERSAL, TIME WARNER INC., NEWS CORP and WALT DISNEY CO.

"By controlling SONY PICTURES ENTERTAINMENT, CBS could improve its exposure to revenue streams from the TV business in key territories, and many of SPE's international channels offer programming which fit well with CBS' existing content," PIVOTAL RESEARCH GROUP senior analyst BRIAN WIESER wrote.

Which could explain why traders exchanged 43,000 calls and nearly 16,000 puts on SONY's stock on MONDAY, LIVEVOL data shows. Over the last three months, SONY has averaged 8,331 contracts traded per day with 5,175 calls and 3,155 puts.

TRADE ALERT said total option volume on SONY on TUESDAY exceeded 72,000 contracts, a record for the stock, eclipsing MONDAY's record of nearly 59,000 option contracts traded.

End result: SONY shares TUESDAY rose $1.87, or 10%, to $20.76. CBS is trading near its 52-week high. Its shares rose $1.05, or 2%, to $50.03.

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