Hovnanian Shares up Sharply On Takeover Speculation
Dow Jones Newswires
August 5, 2009
By Alexandra Scaggs and Dawn Wotapka, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Shares of home builder Hovnanian Enterprises
(HOV) closed nearly 11% higher and option activity surged on takeover
speculation Wednesday, with Toll Brothers (TOL) bandied about as a
possible suitor.
New Jersey-based Hovnanian declined to comment. Toll Brothers, based
in Pennsylvania, didn’t immediately respond to a call and email
seeking comment.
Rumors regarding the two companies have swirled for some time but
analysts following the companies downplayed the likelihood Wednesday
afternoon. One analyst noted the gain could be short covering, as
short interest in Hovnanian has increased for more than two months,
though it remains well below highs set last July. About 20% of
Hovnanian’s shares were held short as of July 15, compared with 10%
for Toll.
The options market appeared to be responding to the chatter. Trading
in Hovnanian options jumped to five times the normal level, with
investors picking up 8,000 calls that allow them to buy the company’s
stock and 600 puts that allow them to sell it, according to Trade
Alert. A bulk of the action took place in Hovnanian’s August $5
calls. Those contracts, priced at 15 cents, make money if the stock
climbs above $5.15 before August 21. Trading in Toll Brothers,
meanwhile, remained normal. Investors picked up 900 calls and 700
puts.
Such a takeover could make sense, given that Toll Brothers caters to a
wealthier clientele and it lacks an affordable entry-level
product. However, Toll’s niche has turned it into a brand name that
has weathered the worst housing downturn in decades better than most
builders. Hovnanian, which is more highly levered and
capital-constrained than its peers and is hoarding cash to meet future
obligations, "seems to be running out of time," Gimme Credit analyst
Vicki Bryan has noted.
Meanwhile, builder combinations have been rare during the downturn,
given that land can be snapped up for a bargain from numerous troubled
or bankrupt builders. While Pulte Homes (PHM) and Centex (CTX) are set
to merge to become the nation’s largest builder later this year, no
other big-builder combinations have been announced.
Shares of Hovnanian, which has a market cap of $264 million, closed
Wednesday up 41 cents, or 10.8%, to $4.22 but are down 1.5% to $4.16
in late trading. Shares have traded about midway between the year high
of $9.67 and low of 52 cents.
Shares of Toll, with a much larger market cap of $3.35 billion, rose
1.2% to $ 20.79 and is unchanged in late trading. Toll stock has
traded between $28 and $ 13.55 over the past year.
-By Alexandra Scaggs and Dawn Wotapka, Dow Jones Newswires;
212-416-2193; dawn.wotapka@dowjones.com
(Tenille Tracy and Geoffrey Rogow contributed to this report.)
(END) Dow Jones Newswires
08-05-091642ET
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