CF Industries, Agrium Deal Offers Investors Two Potentially Profitable Plays

I have been keeping a close eye on CF Industries (CF) lately. CF Industries is a midsized fertilizer maker with a market cap of 3.7 billion. The company received a buyout offer from Agrium Inc. (AGU) back in February of $40.00 per share and 1 share of Agrium stock. The stock has risen from the upper 30’s to 75 dollars per share. The deal currently values CF Industries at $85.00 per share which is a 13% premium over the current price. Agrium has stated that if the deal does not close by June 22nd then the company will pull its offer and walk away from the deal. There are 2 potential ways to play this situation.

(1) For the investor that believes that shareholders will approve this deal and allow the purchase to go through; this is a great arbitrage play. The stock would yield a double digit return in 3 weeks. Agrium may be bluffing about its firm June 22nd deadline. The company has already extended its deadline 1 week.

(2) The investor that believes that the deal will fail can wait until after June 22nd and purchase shares. If the deal does fail the stock should drop significantly which would offer a good entry point for investors looking to own CF.

I am not sure which way this will play out but this situation seems very similar to the Dow Chemical (DOW)-Rohm & Haas Deal, where a larger industry competitor paid a significant premium to purchase a smaller competitor.

Comments

[Al Bondigas:]

If CF management thought CF was worth less they would take the current offer. CF couldn't care less about Agrium or their offer. There is absolutely no reason CF should fall if they don't take the deal. The CF/Terra combination will toast Agrium. Then $80 for CF will be a faint memory. Load up on CF for long term value and appreciation.

Jun 04 03:52 PM

[Chris Damas:]

This isn't particularly useful advice.

Either buy CF and hope the deal goes through or (as I suspect), or not buy the CF shares because the deal will not go through.

Is there any further insight the author would like to profer on this subject?

My feeling has been all along that Agrium did not understand CF is an "ol boy" company created by its shareholders (CHS, Growmark, Agriliance, Conagra). These companies are CF's biggest customers. Some of them are still on the Board.
The Board must approve any bid for the stock.

You can figure out the rest.

Jun 04 03:57 PM

[Deltaxray7:]

Looks like a 50/50 chance on this one.
I ALWAYs pick the wrong 50.

So I'll just hang on to all three stocks of TRA,CF,AG I have
and hope for a wash.
What I really would like to see is all three get back up to where they were last October when I bought them.
At the moment they are up to a negative 45% of the purchase price.
but thats better than the -70% two months ago :)

Jun 05 10:26 AM

[sgrm33:]

I like AGU below 40....

Jun 06 10:04 PM