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-Rohm & Haas Deal, where a larger industry competitor paid a significant premium to purchase a smaller competitor.