Summary
The market has a low return for CF buying Terra and it is much lower than an Agrium tender. Thus the market thinks CF will win in this war. Cash is King. ...but it could take another year to get enough Board members to vote a solution.
Analysis
Today is the last day to tender CF stock to Agrium. Friday is Terra's annual meeting.
A trader could buy CF, sell Agrium short and tender their shares of CF
... And if the tender worked, they would make $101.63-$85.24 = $16.39 or 19.2%
While if you buy Terra and tender it to CF, you Pay $38.07, tender at $32.31 + dividend $7.50 = $39.81
... So you make $39.81-$38.07 = $1.74 or 4.6%.
Thus - one would come to the conclusion the market thinks the odds of the CF bid winning are 4.2 : 1.
The market is betting against the Agrium offer and for the CF offer.
Further, the 4.6% return of the CF Arb is pretty small return - suggesting the market is reasonably confident it will happen.
It would take two annual meetings to win enough Board seats to vote a deal for CF, so if they intend to Proxy their way to victory and if Terra continues to resist ... investors might have to hang in there for another year to cash out. With a mere 4.6% return, they are either happy Terra holders or think the risk of the war not ending soon is pretty low.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
