Agrium Inc. (AGU) Chief Executive Officer Mike Wilson will meet with Jana Partners LLC today after rejecting the hedge fund’s proposal for the Canadian company to spin off its farm retail unit, two people familiar with the situation said.
Jana has been in talks with Calgary-based Agrium since at least May, said the people, who declined to be identified because the meetings are confidential. New York-based Jana pushed for the return of capital to shareholders, before Agrium’s Aug. 3 announcement of a share buyback, according to another person familiar with the situation.
Jana, the activist hedge fund run by Barry Rosenstein, said yesterday in a statement that it’s “disappointed” by Agrium’s response, and the separation of the retail business would “unlock significant long-term value.” Agrium, which also runs a wholesale unit producing fertilizers, said its board decided unanimously that a spinoff “would expose Agrium shareholders to substantial risk with no sustainable benefit.”
“Without a retail division, the company won’t know what farmers want,” Raymond Goldie, an analyst at Salman Partners Inc. in Toronto who recommends buying the stock, said in a telephone interview from Toronto. “Agrium is better to have an integrated company.”
Agrium hired Morgan Stanley as an adviser, one of the people said. Richard Downey, an Agrium spokesman, declined to comment.
Agrium rose 0.4 percent to C$95.93 yesterday in Toronto. The stock has climbed 40 percent this year, valuing the company at C$15.2 billion ($15.3 billion).
Agrium bought U.S. agricultural vendor UAP Holding Corp. for $2.69 billion including debt in May 2008. That was the start of a $4 billion “acquisition binge” and since the UAP deal Agrium shares have trailed those of U.S. competitor CF Industries Holdings Inc. (CF), Jana said.
“Many of these operational issues result from the lack of retail distribution experience on the board,” Jana said. “This lack of expertise has resulted in suboptimal capital allocation and underperformance in retail with respect to managing costs and working capital.”
Agrium generated 63 percent of its sales from retail operations last year while the wholesale business accounted for 34 percent, according to data compiled by Bloomberg.
Retail had $769 million in earnings before interest, taxes, depreciation and amortization, or 27 percent of total ebitda, while wholesale accounted for 72 percent.
Agrium said Aug. 3 it planned to repurchase a C$900 million of its shares.
Jana oversees about $3 billion in investments and commitments and has proposed similar plans to McGraw-Hill Cos. and Marathon Petroleum Corp. The fund said yesterday in a filing it acquired a 4.1 percent stake in the second quarter, making it the largest shareholder according to data compiled by Bloomberg. Jana has almost 5 percent, according to the Wall Street Journal, which first reported the fund’s proposal.
Jana started building its stake in Agrium before the Midwest U.S. drought pushed corn and soybean prices to records, the people said. Agrium said July 18 its outlook was “very positive” because of the drought.
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