Nicor (GAS - Get Report) is a regulated natural gas utility that services more than 2 million customers in Northern Illinois, an area where Nicor enjoys legal monopoly status. A merger announcement with AGL Resources (AGL) in December likely means that Nicor shareholders will soon be AGL shareholders, at an acquisition price of $54.01 per share at current prices. Nevertheless, short-sellers are betting heavily against shares: A short ratio of 15 suggests that a full 8% of Nicor's available float is short.
That short interest is significant for a few reasons. Even though Nicor's shares are only trading for a tiny risk discount to the merger price, forced buying of such a large chunk of the stock's available float is likely to drive GAS' prices up considerably higher than the merger value, creating a gain opportunity for traders willing to take advantage.Because AGL's business is both similar and complementary to Nicor's, it's likely that the merger will go as planned. In that case, it'll be interesting to see the fallout from short-sellers who don't want to remain short when shares of GAS convert to cash and appreciating shares of AGL. With an A- buy rating from TheStreet Ratings, Nicor is one of the top-rated gas utility stocks.