NATCO Rises 16.02% On Acquisiton Offer

Tuesday June 2, 2009
Navivest

Shares of oil and gas production equipment manufacturer NATCO Group (NTG), were up $4.97 to $36, a 16.02% gain today, after Cameron International (CAM) announced that it is acquiring the company in an all stock deal for roughly $780 million.

NATCO shareholders will receive 1.185 shares of Cameron International stock, based on Cameron International’s closing price of $32.45 on Monday June 1, indicating NATCO shareholders will get $38.45 for each of their share.

The boards of both companies have approved the deal and the transaction is expected to close later in the third quarter of this year

June 2, 2009 | Filed Under Company News, Mergers & Acquisition | Leave a Comment 

CF Industries Rejects Agrium’s Latest Takeover Offer

Monday May 18, 2009
Navivest

More Drama In The Fertilizer Industry

CF Industries (CF) on Monday announced that its board of directors has rejected Agrium’s (AGU) latest revised offer to purchase all the outstanding shares of CF Industries.

After a review of the offer, the company determined that the offer “continues to substantially undervalue the company and is not in the best interests of CF Industries and its stockholders.”

The latest offer from Agrium adds $5.00 in cash per share, which according to CF Industries, is only $0.58 above the $4.42 per share increase in CF Industries’ cash position during the first quarter of this year.

Unfortunately for Agrium, it does not help that the market is up significantly since it made the offer.

CF Industries is also unwilling to sell, as it believes that Agrium is simply trying to act as a spoiler in CF Industries own bid to acquire Terra Industries (TRA). Agrium’s offer is conditioned upon CF Industries dropping its bid for Terra.

CF Industries made a then $2.1 billion offer to acquire Terra back on January 15 of this year. Under the terms of the offer, TRA shareholders would receive .4235 shares of CF Industries for every share of Terra that they owned. Terra’s board of directors voted to reject the offer.

The closing price of Terra on January 15 was $16.27 and the price of CF Industries was $47.23, meaning TRA shareholders would have received $20 for each of their share, a 23% premium. Since then shares of Terra have climbed to $29.36, while CF Industries’ have rallied to $82.34.

If Terra shareholders were to accept the offer today under the same terms, they would receive $34.87 in CF Industries stock, which is a premium of just 18.77%.

May 18, 2009 | Filed Under Company News, Mergers & Acquisition | Leave a Comment 

Merger Arbitrage Trade Recommendation - FCL/ANR

Wednesday May 13, 2009
Navivest

On Tuesday, coal producer Alpha Natural Resources (ANR) announced that it has signed a definitive merger agreement with Foundation Coal (FCL), under which the two companies will combine in an all-stock transaction, to create the third largest coal producer in the country.

Per the agreement, Foundation Coal shareholders will receive 1.084 shares of Alpha Natural Resources, for each share of Foundation Coal that they own. This works out to $32.725 ($32.73 rounded up).

The price of the deal was calculated using Alpha Natural Resources’ closing price on May 8, which was $30.19. With Foundation Coal having 44.69 million shares outstanding. This values the deal at $1.462 billion.

As so often happens in announced deals that are not all cash, shares in the company being acquired, in this case, Foundation Coal, rallied, but to less than the full per share value of the deal.

Foundation Coal climbed $4.82 from Monday’s closing price, to $28.06 on Tuesday, $4.67 shy of the merger price. That leaves a 16.64% profit potential for traders who employ a merger arbitrage strategy.

To do so, a trader would purchase shares of foundation Coal, and short one share of Alpha Natural Resources for every share of Foundation Coal they purchase.

Doing so locks in the $32.73 price for FCL and the $4.67 profit. Of course, the deal would have to be completed and on the terms that are the basis of this particular trade.

The deal is expected to close in August/September giving the potential for a 16.64% profit in just three to four months.

Risk Analysis:
As with all merger/takeover announcement, there is no guarantee the deal will be completed. However, because of the size of the merged company in relation to the entire industry, the deal should get FTC clearance.

Also being that it is an all-stock deal, traders do not have to worry about whether Alpha Natural Resources will be able to secure financing in this tight credit environment.

There is also a potential upside in that a competitor could emerge and place a higher bid for Foundation Coal. Alpha Natural Resources itself was an acquisition target last year, with Cleveland Cliffs, now Cleveland Natural Resources (CLF) announcing on July 16, a $10 billion offer for the company.

However, one of CLF’s largest shareholders opposed the deal and it was scuttled.

Wall Street analysts have been expecting consolidation in the industry in recent months and this Alpha Natural Resource’s competitors might not be willing to watch Foundation Coal go to a competitor.

Shares of ANR and FCL closed at $27.06 and $28.06 respectively, on Tuesday,
 

The above trade recommendation is a sample of the subscription base Navivest Equity Trader service. For more info, click here.

May 13, 2009 | Filed Under Company News, Mergers & Acquisition, Stock Recommendation, Trading Idea | Leave a Comment