Citigroup Inc. |C
Citi preferred |C.P

Deal value $27 billion

Spread 05/11/09 $6.62, or 30.6%

Citigroup Inc. raised its exchange offer for its preferred shares after the Federal Reserve Board's banking stress-test results. Assuming the spread between the preferred issues, of which there are many, and Citi shares can be captured by a Citi short or in the options market, the trade has some life.

There was concern that Citi might alter the exchange offer based on stress-test results, but the bank has indicated otherwise and increased its offering to exchange preferred capital for common to accommodate for the additional $5.5 billion the government says Citi needs.

The predetermined Citi exchange already assumes up to $27 billion in an exchange in which preferred Series F and AA shares, which are publicly traded, will each be converted into 7.30769 Citi shares. The AA series recently traded for $21.60, for a spread of $6.60, or 28%, to their value in the Citi exchange. The Series F, which have a higher interest rate, trade at a modest premium to AA.

Citi's expansion of the preferred exchange to accommodate its capital needs should be a good sign for the arb play. But there have been persistent concerns that the ratio might be changed as shares rise above the $3.25 conversion price used to set the deal.

CF Industries Holdings Inc. |CF
Agrium Inc. |AGU

Deal value $4.1 billion

Spread 05/11/09 $8.67, or 11.4%

Agrium Inc. bumped its hostile offer to acquire CF Industries Holdings Inc. after it effectively lost an effort to control the CF board.

CF has its own hostile bid outstanding for Terra Industries Inc. and seeks to remove members of Terra's board, which has yet to set an annual meeting date. Terra altered its bylaws so it doesn't have to set a meeting before yearend. Terra, however, must alter a record date for that meeting if it pushes the date past the first week of June.

Agrium boosted its offer for CF Industries to $40 in cash and one Agrium share, up 6% (14% of the cash component) to a 53% premium to CF's share price before it launched its offer. Agrium says it tried to meet with CF to test its bid but was rebuffed. It extended the offer to June 15.

Agrium didn't meet a February cutoff for nominating directors to the CF board and failed to get a meaningful showing for a vote to withhold support for CF directors at its April 21 meeting.

CF claims Agrium is only trying to disrupt its bid for Terra, but in what could be interpreted as a sign of seriousness, Agrium engaged Goldman, Sachs & Co. in early May as an additional adviser on the CF offer.

Agrium did extend its bid for CF to June 15, even while claiming it was still pushing for shareholder support. Securities law requires a 10-day extension after deal terms are altered.

So why is Agrium giving CF shareholders extra time to tender and show support for its offer?

CF argues that Agrium does not want to buy the company. Agrium faces hurdles that would not allow it to close a deal before June. Agrium's bid is under Federal Trade Commission review, and CF has a poison pill.