Takeover Rumors Push Lincare Up 35%; Vol At Annual High; High Enough?

Lincare Holdings Inc. (LNCR) is a provider of oxygen, respiratory and other chronic therapy services to patients in the home. The Company’s customers suffer from chronic obstructive pulmonary disease (COPD), such as emphysema, chronic bronchitis or asthma, and require supplemental oxygen, respiratory and other chronic therapy services.

This is a stock and vol note in a company that has been ripping as of a few days ago due to takeover (and bidding war) rumors. Let's start with the news, then get into the stock and vol moves:

Lincare Holdings Inc. (LNCR), a U.S. provider of oxygen and respiratory therapy services, is seeking a buyer and has attracted interest from companies including Germany’s Linde AG (LIN), two people familiar with the sale said.

Air Liquide SA (AI) of France has also expressed interest, one of the people said. JPMorgan Chase & Co. is advising Clearwater, Florida-based Lincare in talks with potential buyers, said the people, who asked not to be identified because the process is private. Linde, the world’s second-biggest maker of industrial gases, has also hired investment banks to advise it on a possible bid, one person said.

Since the close of June 26, Lincare has risen more than 32 percent, valuing the firm at $2.9 billion euros as of 12:21 p.m. New York time today. The Financial Times’s FT Alphaville reported on June 27 that Linde is leading the bidding in an auction for the U.S. company, citing unidentified sources. Linde Chief Executive Officer Wolfgang Reitzle has identified health care as one of the firm’s growth areas and in January agreed to buy Air Products & Chemicals Inc. (APD)’s home-care business.

Lincare may be worth $40 or more per share if it’s bought, Jefferies Group Inc. analyst Brian Tanquilut said in a note this week, raising the stock to “buy.” The stock was at $33.46 in early afternoon trading.

Private equity firms may also be interested in the company, said one of the people. The company is an “ideal” leveraged buyout target, Citigroup Inc. analyst Gary Taylor wrote in a note this week. -- Source: Bloomberg via Yahoo! Finance; Lincare Said to Draw Interest From Linde and Air Liquide, written by Aaron Kirchfeld and Jeffrey McCracken.

Very exciting...

Let's turn to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).


On the stock side, we can see the abrupt pop that the article referenced. This was a $25 stock a few days ago and had been trading in a fairly tight range over the last six months -- roughly between $22 and $28. The 52 wk range is [$19.17, $33.19], meaning the levels reached today are new highs.

On the vol side, we can see the implied popping with the short-term historical realized vol. In English, the implied has moved with the stock. The 52 wk range in IV30™ is [21.08%, 72.49%], where that top number was reached on 6-27-2012.

One interesting question may be to ask that, while the vol is at or near an annual high, is ~70% really high enough? I mean, is this company literally in a bidding war? Will the decision (or news) be announced soon?

Let's turn to the Skew Tab to examine the monthly vols.


We can see a clear vol increase from the back to the front. While earnings are due out in the Jul cycle, that vol is not just from earnings -- it's the event (or possible event) risk surrounding a takeover target that's driving the risk. I do note that the OTM calls actually do have lower vol than the ATM strikes -- that's "normal" but this company isn't "normal" right now -- the takeover stuff is known. The skew shape is odd, which is to say, it's oddly normal, IMHO.

Finally, let's turn to the Options Tab, for completeness.

We can see the monthly vols across the top are 68.39%, 53.81% and 38.54% for Jul, Aug and Nov, respectively. Or in English, the options reflect substantially more risk in the near-term than the medium to longer-term.

DISCLAIMER:  This is trade analysis, not a recommendation.