Is An LBO Of Cardinal Health Imminent

Tyler Durden's picture

The below chart which compares CAH CDS and stock, shows that something may be afoot in Cardinal Health, and that someone knows something, but is hiding their knowledge from the stock very well. As can be seen, CAH CDS has surged over the past 5 days, nearly doubling from an average level in the 60 to about 120 today. For an investment grade company rated Baa3/BBB+ which barely has any debt concerns, this kind of CDS jump on no credit adverse news means only one thing: the imminent incursion of a massive load of debt, most typically associated with a Leveraged Buy Out. Yet taking a look at the stock shows that so far anything that credit may know is not being picked up by the stock. A typical LBO results in a 20-40% stock premium, so if true expect the stock to jump to $38-$44 as this news is digested.

Furthermore, the 3s5s in CAH is massively steeper, also a traditional imminent LBO sign:

And some other telltale signs:

  • Several large blocks in CAH December $35 calls (so now we have a timeline).

  • And an odd increase in CAH volume, orders of magnitude above the average.

Of course the biggest indicator here is the CDS. It is very possible that someone knows of a isolated credit negative event that won't have an adverse impact on the stock, but it is unlikely. If anything, one's money should be on a take out. Buying a few copycat December $35 calls may turn out to be a rather profitable trade soon.

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iota's picture


Stock picks?

hamurobby's picture

nah, just more proof of how insiders make all the money and retail suckers get in last.

I should ad that first I bought a few $40 dec calls and then posted, thanks TD :-)

TooBearish's picture

Awesome tactical work Ty - LBOs back in fashion should easily get ES to 1220

KevinH's picture

Now the stock is surging.

badnews...buyspus's picture

WAG is putting their PBM unit for sale - CAH to buy it??? looks that way

MeTarzanUjane's picture

Now this is the kind of book talking that errbody likes.

egdeh orez's picture

Nice one, TD!

I'd be great if we got more of this type of info here.

rd's picture

Better refresh that CDS/Stock graph often...the word is out. Somebody will get screwed BIG TIME!

MeTarzanUjane's picture

It's be nice to see an article about the nice natty trade that is setting up.

slaughterer's picture

I give Tyler many Gordon Gekko (1987 version)  points for this post.  Right on target, and, yes, I cannot wait till the Larry Wildman character here shows up at Tyler's cocktail party (chest popping out like an enraged rooster): "Even more suspicious than your interest in CAH" 

Turd Ferguson's picture

Lots of ZH readers out there. Stock moving up nicely.

junkhand's picture

for what it's worth, mckesson corporation credit spread surged yesterday, too.  no corresponding surge in stock.  (MCK)


curious two health corps credit spreads surged same day to very high levels.

ZeroPower's picture

Earnings play prob

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