Agrium Inc. last week responded to requests by Jana Partners LLC, a major shareholder, to split up the company – specifically, to spin off its Retail business.
"We are confident that Agrium shareholders will receive far greater value with less risk under the company’s current strategy," said Michael Wilson, Agrium’s president and CEO, in an Aug. 14 statement. "Agrium’s board has carefully evaluated the idea of spinning off Retail and has unanimously determined that it is contrary to the best interests of the company and its shareholders. Spinning off Retail would expose Agrium shareholders to substantial risk with no sustainable benefit, and we will not be pursuing it.
"Agrium is a top-performing company that has created significant shareholder value across the business cycle and that is returning excess capital to shareholders through dividend increases and share buybacks. We are in close contact with our shareholders and take their views seriously. We are confident the vast majority understand and support our strategy," added Wilson.
Agrium noted that it has increased its dividend nine-fold since December 2011, and recently announced a C$900 million share repurchase program in connection with the sale of Viterra’s Medicine Hat nitrogen facility. The company achieved record sales, gross profit, EBITDA, and net earnings in 2011 and again in the first half of 2012. In addition, Agrium says it is one of the best performing stocks in North America. The company’s share price has increased 43 percent year-to-date versus 12 percent for the S&P 500, and by 97 percent over the past three years. Agrium has also outperformed the S&P 500 and the company’s fertilizer peer group over the year-to-date and three-year periods.
Jana bought some 6.5 million shares of Agrium valued at $575 million as of June 30, 2012. This represents about 4 percent of the company, making it Agrium’s largest shareholder. It also held call options on 280,500 additional shares valued at $24.8 million. As of the June 30 Securities and Exchange Commission filing, Agrium was by far Jana’s largest investment, accounting for about 24 percent of its $2.4 billion portfolio. Jana has a reputation as an activist investor and was instrumental in getting publisher McGraw-Hill Cos. to split up, which is to happen later this year.
Jana quickly responded to Agrium’s Aug. 14 press release, saying that while Agrium has pointed to its short-term 2012 share price performance, long-term value creation is much more relevant. Jana said from May 2008 through last week, Agrium shares have returned 13 percent on the Toronto Stock Exchange, versus 57 percent for pure play fertilizer company CF Industries Holding Inc. and a 163 percent average return for the pure play retail comps selected by the company itself, belying the company’s arguments about the supposed benefits of its conglomerate structure.
Jana also said there is a lack of retail distribution experience on the Agrium board, resulting in suboptimal capital allocation and underperformance in Retail with respect to managing costs and working capital.
On Aug. 15, Agrium CEO Mike Wilson met with Jana Managing Director Barry Rosenstein. Agrium downplayed the timing of the meeting, saying it is traditional to meet with shareholders and that the meeting was arranged weeks in advance. At the meeting, Agrium said it made clear to Jana that the board carefully considered Jana’s position, but reiterated the board determination that a spin-off would not be in the best interests of the company or its shareholders.
Jana’s Rosenstein was not won over by the meeting with Wilson, as he quickly drafted a letter to the Agrium board and released it to the press. “We have watched in disbelief over the last few days as the management of Agrium Inc. has taken a scorched earth approach