Talk isn't always cheap.

In fact, the chatter preceding

Jones Apparel Group's


announcement Tuesday evening that it would buy

Nine West Group


turned out to be quite valuable.

As far back as early February, rumors about a potential deal between the two companies were rampant at an industry trade show and, later, on Internet message boards.

News that the two companies could be in talks first surfaced at the

Western Shoe Associates

trade show in Las Vegas, which took place the week of Feb. 9.

Steven Richter, an analyst with

Tucker Anthony

, says he was struck by the rumor's clarity. "We heard this rumor from product-level people," he says. "The rumor was so crystal." He says the talk focused specifically on Jones Apparel, although

Liz Claiborne


was also mentioned as a potential suitor. Richter tracks the shoe industry but doesn't follow either Nine West or Jones.

By Feb. 20, the talk reached



chat boards. On Feb. 25, a full week before the deal was announced, a chatter, who goes by the name koffeebreath wrote: "I've heard that it's JNY. And the price will be $25 a share. Supposedly a done deal."

His price tag was just shy of the $26 a share in cash and stock that Jones agreed to pay for Nine West's 34 million common shares, or roughly $885 million. Jones also will assume Nine West's debt, bringing the transaction's total value to $1.4 billion.

Meanwhile, beginning Feb. 23, Jones Apparel's shares began acting like those of an acquirer, falling 14% to close Tuesday at 25 15/16. Wednesday the stock lost 12%, or 3 3/16, to close at 22 3/4. Jones, based in New York, sells apparel and other merchandise under the Jones New York and

Ralph Lauren


Nine West's shares acted like a target, gaining 62% to 22 13/16, where they closed Tuesday before the deal was made public. Wednesday shares gained 1/16 to 22 7/8. Some of that increase was due to the

Securities and Exchange Commission's

decision to drop its investigation into Nine West's revenue-booking practices without taking any enforcement action. Nine West, based in White Plains, N.Y., sells shoes under numerous well-known labels, and is still the subject of a price-fixing investigation by regulators.

On Friday, Nine West saw speculation crop up in the options market. Takeover players often use call options to leverage their belief that a stock will spike on news of an impending takeover.

With Nine West shares at just over 22, the company's out-of-the-money calls options traded well above their usually minuscule average volume of 230. In addition, Paul Foster, the options strategist for

, says the implied volatility reading -- a gauge traders use to determine how much a stock may move -- jumped to 114 from 91 on Friday. Historically, large moves in implied volatility and increase in call volume signal traders that speculation on a potential deal is heightening.

Even as the final tweaks to the negotiations were being completed, Nine West's chief financial officer, Robert Galvin, nonchalantly addressed investors at a

Bear Stearns

conference in New York Tuesday morning. When asked about the rumors, he told investors he had no comment, says a conference attendee. But Jones Apparel, which was scheduled to appear at the same conference, abruptly canceled its 2:15 p.m. presentation after news of the pending deal was reported on


. The companies made the formal announcement late Tuesday evening.

"I'm shocked by the way this was handled," says the money manager who attended the Bear Stearns conference and had also heard the rumor at the trade show.

Phone calls to Nine West and Jones Apparel weren't returned.

"People involved in publicly held companies must be careful about how they handle information," says John Heine, an SEC spokesman. He adds only that the SEC's antifraud provisions cover insider-trading violations, in which case a fiduciary duty is violated and nonpublic, material information is used to make investments.

"We have a healthy respect for the First Amendment," he adds. "We don't control speech."

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