Harley surges on Honda talk; skeptics abound

By James Kelleher and Doris Frankel

CHICAGO, June 22 (Reuters) - The shares and options of motorcycle maker Harley-Davidson Inc. (HOG.N) surged on Friday amid speculation Honda Motor Co. Ltd. (7267.T) was looking to buy the U.S. motorcycle maker.

A spokesman for Harley-Davidson declined to comment on the talk and a call requesting comment from the U.S. unit of Honda was not immediately returned.

"We don't typically comment on market speculation or on day to day market activity," said Bob Klein, a spokesman at Milwaukee-based Harley.

Several analysts, however, characterized the talk as far- fetched and suspiciously timed.

Tim Conder, an analyst at A.G. Edwards, said he believed the rumor was "false based on several factors," not the least of which was a combined company would control nearly 60 percent of the U.S. heavyweight motorcycle market -- and be slapped down by antitrust regulators.

Conder speculated the rumor might have been an end-of- quarter effort "to squeeze shorts and raise the stock."

Robin Farley, an analyst at UBS, was also dubious, calling a Honda takeover "unlikely" because "Harley's brand value would likely be negatively affected if it were acquired by a foreign manufacturer."

Many options traders and analysts were equally skeptical. Paul Foster, options strategist at theflyonthewall.com, a Web site specializing in stock and equity option movement, downplayed the speculation in Harley. "There could be a partnership if anything," he said.

Despite the skepticism, Harley shares surged as much as 6.4 percent. They closed Friday's session up $2.43, or about 4 percent, at $62.55 on the New York Stock Exchange.

In all, 58,535 Harley options changed hands on Friday, more than 14 times the daily average, according to figures from market research firm Track Data.

The July calls were especially active, said Stacey Briere Gilbert, chief options strategist at Susquehanna Financial Group.

"We have seen an increase in buyers of July $60, $62.50, $65, $67.50 and $70 strike calls," she said.

But the greatest concentration was in the July calls allowing investors the right to buy Harley shares at $70 a piece by July 20. Those calls, with strike prices nearly $7.50 above Harley's closing share, traded 19,874 times and cost 35 cents a contract.

Investors often turn to out-of-the-money calls with strike prices above the current share price as a cheap way to play the stock for a move higher.