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Two big deals that leaked into the market this week are providing perfect examples of the way options activity can help strip away some of the noise surrounding high-profile mergers and get at when -- and at what price -- traders think the marriages would take place.

The two headliners were




General Instrument





potentially buying




Bestfoods quickly denied today's

Wall Street Journal

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story, saying that no "significant" talks were under way. That statement can play an important role in placing bets on a deal closing, according to Seth Washburne, manager of the

Washburne Capital Management

hedge fund in New York City, which specializes in takeover and arbitrage situations.

"Companies usually don't lie when they come out and deny they are in 'significant' merger talks in these situations because if they are in talks and they deny it, they can get sued," said Washburne. "And hey, companies are always in discussions with one another. It's like dating. Sometimes it works out. Sometimes it doesn't."

So the Bestfood denial doesn't mean a deal won't happen. "There's no deal imminent in the next month or so" for Heinz and Bestfoods, he said. "The fact it's not 'significant' is the way every company would describe themselves. That's the status quo when there's no deal."

A look at the near-term options in Bestfoods seemed to back him up. With the stock up 3 5/8 to 52 9/16, the September 55 puts -- generally a bet that the stock will fall in the next few days before expiration -- were up 1/8 ($12.50) to 2 3/4 ($275). However, options dated one month later, such as October 55 calls -- generally a bet the stock will rise to 55 -- were up 11/16 ($68.75) to 1 1/16 ($106.25).

And Bestfoods' long-dated options, known as LEAPS, or Long-Term Equity AnticiPation Securities, also ticked up in anticipation of a deal


-- just not today. The 2000 January 55 calls gained 1 5/8 ($162.50) to 2 7/8 ($287.50).

That Motorola did take over General Instruments actually supports the silence-as-affirmation argument, Washburne said. "Rumors of this deal were in the market for days beforehand; it was leaked and the companies didn't deny it. Then there was a deal."

Both companies' stock prices were down Wednesday after the deal was finally announced. "You would get some upside if the deal had been negotiated at a higher price," he said. "It came out a bit sweeter, but not a lot."


Donaldson Lufkin & Jenrette

downgraded GIC Wednesday to market perform from buy, which didn't help matters but probably pleased the buy-the-rumor-sell-the-fact contingent.

Plus, as is the case with many stock-for-stock merger deals, as the buyer's stock price drops, so does the acquirer's, on a dollar-for-dollar basis. Motorola was down 4 11/16 to 88 1/2. General Instrument was down 1 11/16 to 48 13/16.

Meanwhile, General Instrument's October 50 puts were among the most active Wednesday, up 1 1/6 ($106.25) to 3 3/8 ($337.50) on volume of 1,500.

Finally, options activity in

Republic New York


streaked along unabated despite the bizarre circumstances surrounding its agreed-upon deal to be bought by

HSBC Holdings


Worries that the $72-a-share deal wouldn't go through because of a rogue trader's losses are nonsense, said Larry McMillan of

McMillan Analysis

options trading firm in a morning research note.

"Republic says the merger is still on, and some analysts feel a settlement of $200 million or so will placate investors," he said. "That wouldn't stop the buyout, but it might delay it." He recommended his clients buy the October 60 calls, currently 1/4 ($25) to 3 1/2 ($350), which would rise as the situation was resolved and have about four weeks of life to them.

Republic's stock, meanwhile, slumped 1 3/16 to 57 13/16 halfway through the session.