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Investors concerned that tighter U.S. rules for cross-border deals will kill Burger King Worldwide Inc.?s merger with Tim Hortons Inc. (THI) are flocking to the options market.
Bearish contracts on the Whopper maker cost the most ever versus bullish bets as trading in the options surged. Short interest (BKW) on Burger King, which agreed in August to buy the Canadian coffee-and-doughnut chain for $11 billion, has jumped fivefold since the deal was announced.
The acquisition would move the Miami-based company?s corporate headquarters to Canada, where the federal tax rate is lower. While the announcement spurred a stock surge, three of eight tax-inversion deals have fallen through since the U.S. Treasury?s September notice about tightening rules to make such mergers more difficult.
?The option market is accounting for increased uncertainty surrounding cross-border deals with potential tax benefits,? said Alex Kosoglyadov, vice president of equity derivatives at BMO Capital Markets in New York. ?Skew in Burger King options is at its all-time high, suggesting investors may be nervous about the deal with Tim Hortons closing,? he said, referring to the price relationship between puts and calls.
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