July 5, 2007 / 8:42 PM / 10 years ago

Quest Diagnostics options, shrs up on buyout talk

CHICAGO, July 5 (Reuters) - Shares of Quest Diagnostics Inc. (DGX.N) jumped more than 8 percent and its options volume turned busy on Thursday afternoon amid renewed speculation the biggest U.S. medical testing company is a takeover target.

"The options in Quest Diagnostics are trading very actively on the call side as investors speculate that this company will be the next to be acquired," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.

A Quest spokesman said it is company policy not to comment on rumors or speculation about the company or market activity.

Acquisition activity among health-care service companies, particularly by private-equity groups, has been healthy for the past year. Earlier this week, Manor Care HCR.N, a nursing home company, agreed to be bought for about $4.9 billion, excluding debt, by the Carlyle Group.

Speculation that Quest would be the target of a leveraged buyout is not new and surfaced earlier this year.

In the U.S. options market, Quest Diagnostics was one stock that is seeing "unsubstantiated takeover rumors" along with near-term call buyers, the Susquehanna Financial Group's Market Intelligence Team said in a research note on Thursday.

Particularly notable were the calls allowing players to buy Quest Diagnostic shares at $55 and $60 a piece by July 20, Lefkowitz said. Investors often turn to equity calls hoping to profit from a stock price rise.

The July $55 calls traded 12,830 times on Thursday and cost $2.70 a contract, up $2.55 on the day.

Even the July $60 calls were active with volume of 6,360 contracts. They fetched $1.20 a contract, up $1.15.

But Jon Najarian, co-founder of Web information site optionmonster.com, said the heavy activity in Quest call options showed no clear direction. According to his computer model, the volume in the July $55 call series appeared to be mixed with about 4,500 contracts sold late in the session.

Shares of Quest Diagnostics rose 6.65 percent, or $3.43, to finish at $55.00 after hitting a session high of $56.98 on the New York Stock Exchange.

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