Shares of FedEx Corp (FDX.N) rose as much as 8 percent on Tuesday on speculation that billionaire investor William Ackman would make a big investment in the world's No.2 package delivery company.
Ackman wrote to clients on Monday asking them to commit $1 billion to two new funds by the end of next week to invest in a major U.S. company that he did not name.
"The increasing volume in shares and options is being attributed to talk that activist investor Bill Ackman's Pershing Square might be taking a stake in FedEx," said WhatsTrading.com options strategist Frederic Ruffy.
Ackman said the large-cap company he had in mind was engaged in a simple and predictable business that had high barriers to entry.
Its stock also traded at a lower earnings multiple than its most comparable competitor, he said.
Market speculation centered on FedEx as the company that best fit Ackman's description.
The company's shares trade at 13.9 times forward 12-month earnings estimates of the most accurate analysts, according to Thomson Reuters StarMine. Shares of larger rival United Parcel Service Inc (UPS.N) trade at 16.6 times.
FedEx spokesman Jess Bunn said the company had no comment. A spokeswoman for Ackman was not immediately available.
"We agree that the (FedEx) valuations are attractive but we're not convinced that there is an opportunity for an activist investor to catalyst a big operational improvement at FedEx like there was at Canadian Pacific," Morningstar analyst Keith Schoonmaker said.
A $1 billion investment would get Ackman a 3.2 percent stake in FedEx, based on the company's market value of $31.32 billion as of July 8.
Ackman has been investing in transport companies and fought a bitter proxy battle last year to overhaul Canadian Pacific (CP.TO), Canada's No. 2 railway.
FedEx shares were up 7 percent at $105.94 in heavy afternoon trading on the New York Stock Exchange. UPS shares were up 3 percent.
Option volume on FedEx was running eight times the daily average with 60,000 calls and 21,000 puts crossing the tape during the first half of Tuesday's trading session, according to options analytics firm Trade Alert.
(Reporting by Sagarika Jaisinghani in Bangalore, Nivedita Bhattacharjee and Doris Frankel in Chicago and Svea Herbst-Bayliss in Boston; Editing by Saumyadeb Chakrabarty)