It looks like InBev and Anheuser-Busch (BUD, $65.73, up $4.52) have begun negotiations for a friendly merger after InBev reportedly has raised its offer from $65 to $70 a share. BUD had been a reluctant takeover target and rejected InBev’s original $46 billion bid.

Today’s news comes after a heated battle that was leading InBev in the direction of ousting BUD’s board of directors. From the looks of things, BUD is likely to accept the new $50 billion offer this weekend.

I mentioned this story a month ago along with a few options. The June calls I profiled easily doubled. The July 60 calls (BUDGL, $6.00, up $4.50) that were profiled on 6/2 at $2.00 have tripled. The July 65 calls (BUDGM, $1.55, up $1.45) were trading at $0.40 at the time. Of course, today’s gains were unexpected but for those of you who held tight to the 65 calls were well rewarded. Many of you probably set stops from the original price and got out at 50%-100% which is what you were suppose to do.

We were well ahead of the game a month ago on this option trade. I had mentioned that many believed that $70 would be the number for the “goose to lay the golden egg”. If you don’t know that fable, look it up. From that you get “killing the golden goose” which is a metaphor for a quick decision that may bring an immediate reward, but will ultimately prove disastrous. This marriage may not turn out that bad but it sums up pretty much how I feel about the deal.

Although I’m happy that we were able to make money on BUD, it just doesn’t feel right when you see another American icon get bought out.

Rick Rouse
Rick@OptionsMentoring.com

Merrill Lynch (MER, $30.12, down $1.00) started the morning in positive territory but is now down over 3% as we head towards the closing bell. According to a report, Merrill is seeking $5 billion for its 20% stake in Bloomberg, a price some analysts say is lower than what Merrill could fetch in the open market. Bloomberg has the right of first refusal over the proposed sale which could make it difficult to attract rival buyers.

Merrill also holds a 49% interest in BlackRock (BLK, $163.80, down $5.77) which is worth $12 billion that it is also trying to sell. The company is looking to sell only part of its investment in BlackRock because it wants to maintain a strategic alliance with the firm.

These moves are needed as Merrill tries to raise capital to offset as much as $6 billion in expected write-downs for the quarter. The stock dropped below $30 today and is struggling to close above that level. The July 32.50 puts (MERSA, $3.20, up $0.56) are up over 20% today and 50% from an entry price of $2.15.

Rick Rouse
Rick@OptionsMentoring.com