Shares of Macy's Inc.rose as much as 10 percent on Friday and its options volume surged on speculation that the retailer, whose same-store sales have been disappointing in recent months, was ripe for a takeover.
The company's shares jumped to $43.11, before closing up $2.56, or 7 percent, at $41.43 in very active trading on the New York Stock Exchange.
There is unusual share and option activity in Macy's as rumors circulate that it will be acquired, said William Lefkowitz, an options strategist at brokerage firm vFinance Investments.
Lefkowitz added that a takeover price as high as $50 has been mentioned. No suitor has been mentioned.
Shares in Macy's surged by more than 10 percent over lunch time as rumors hit the chat rooms that it was about to feel the heat from the next big LBO buyout, said Andrew Wilkinson, senior market analyst at brokerage firm Interactive Brokers Group.
Macy's spokeswoman Sharon Bateman had no comment on the takeover talk. It's a long-standing policy that we don't comment on speculation, she said.
The operator of Macy's and Bloomingdale's stores has come under pressure in recent months as sales at stores open at least a year, an important retail measure, have lagged expectations.
The company, formerly known as Federated Department Stores, has said that sales at former May stores it acquired in 2005 and converted to the Macy's name have been lower than anticipated, and has also cited weak demand for home goods.
May marked the fourth-straight month that Macy's has posted weaker-than-expected same-store sales. Earlier this month, Macy's said it expected June same-store sales to be flat to down 2 percent.
What's more, at least three law firms have announced this month that class-action complaints had been filed against Macy's.
The Pittsburgh law firm of Alfred G. Yates Jr., PC said in a June 7 statement that its lawsuit, filed in U.S. District Court for the Southern District of New York, charges that Macy's officers concealed that the May integration was actually failing, sales growth was diminishing, the company's business had deteriorated and as a result, its sales projections were grossly overstated.
In the U.S. options market, the volume went through the roof as 118,703 calls versus 18,009 puts changed hands -- more than 29 times its normal turnover, according to market research firm Track Data, as investors positioned for a potential run-up in Macy's shares.
Investors often use equity calls, which give them the right to buy a security at a given price and time to bet on further stock strength.
Huge turnover was seen in the calls granting investors the right to buy Macy's shares at $40 all the way up to $50 a piece by mid-July.
The strong demand for Macy's options lifted its implied volatility, or how much in percentage the stock is expected to move up or down in a rolling 12-month period based on option prices.
Macy's July option implied volatility stood at 40 percent late on Friday, above a level of 27 percent early Friday, and up from its 6-month average of 30 percent, according to Track Data.
That spike in volatility indicates that the market is bracing for a dramatic stock move, said Paul Foster, options strategist at Web information site theflyonthewall.com.
With Friday's rally, Macy's stock has risen 10.6 percent so far this year.