Stockpickr: Profit From Merger Arbitrage

Next up is Delta and Pine Land(DLP Quote), which produces and markets cotton planting seed. In August, Monsanto(MON Quote) said it would pay $1.5 billion in cash ($42 per share) to buy Delta and Pine Land in a move to combine two of the world's largest seed companies.

Monsanto had first announced plans to buy Scott, Miss.-based Delta and Pine Land in 1998 but backed out, prompting a legal dispute that continued until the new agreement was reached. That first offer was withdrawn when the Department of Justice delayed its approval, citing monopoly reasons. However, the situation is different this time around due to the introduction of a competitor, Bayer(BAY Quote), into the seed business.

Right now the spread between the current price of Delta and Pine Land (around $40.85) and $44 is 2.8%. If the deal closes within the next two months, the annualized spread is almost 17%. The deal may also close sooner than that, as stockholders have already approved it. That would be an annualized return that is significantly above the market returns of the past few years.

I'm not the only one who likes this play: Sowood is also in Delta and Pine Land. Deephaven Capital, which is owned by Knight Capital(NITE Quote) and specializes in all forms of arbitrage (but is particularly known for convertible arbitrage), has also accumulated a stake in Delta and Pine Land. Click here to see Deephaven's top holdings.

We update the top merger arbitrage situations, with spreads and analysis, every two weeks on Stockpickr. Check out the portfolio for the latest situations, and bookmark it with four stars to get email notification whenever we update our analysis.

Stockpickr tip of the day: Market guru Peter Lynch's stock-picking advice is to go to the local mall and see what people are buying. Stockpickr member Tinley Park took it one step further. He has set up two portfolios on Stockpickr that are worth a look.

First is the Orland Square Mall portfolio, which is made up of public companies that have actual stores in the Orland Square Mall, near Chicago. This can almost be thought of as a retail index for boomers, since Orland Square seems somewhat upscale.

Second is the Tinley Park portfolio, which consists of all public companies in the Chicago suburb Tinley Park.

If you put up a portfolio of stocks related to a particular place or concept that's close to your heart, please send me the URL and I'll take a look at it.