Agrium Says It Won’t Spin Off Unit After Hedge Fund Call

Agrium Inc. (AGU), the largest farm retailer in the U.S., said it won’t spin off its retail business following a report that shareholder Jana Partners LLC wants to separate the unit from the more profitable wholesale operations.

“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,” Michael Wilson, Calgary-based Agrium’s president, said today in a statement. “Spinning off retail would expose Agrium shareholders to substantial risk with no sustainable benefit.”

Jana, run by Barry Rosenstein, is an event-driven hedge fund, meaning it generally invests in companies undergoing changes such as mergers, spinoffs and bankruptcies. The firm, founded in 2001, oversees about $3 billion in investments and commitments and has proposed similar plans to McGraw-Hill Cos. and Marathon Petroleum Corp.

Jana owns almost 5 percent of Agrium, the Wall Street Journal reported yesterday. The fund acquired 6.5 million shares of Agrium as of June 30, according to a filing with the U.S. Securities and Exchange Commission. Charles Penner, a spokesman for Jana in New York, declined to comment.

Agrium rose 2.3 percent to $98.45 at 9:21 a.m. before the start of regular trading in New York. The shares gained 43 percent this year through yesterday, compared with a 3.5 percent decline in the BI Global Fertilizer Peers Index.

Higher Dividend

Agrium, with a market value of about $15 billion, generated 63 percent of sales from retail operations last year while its 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.

A breakup “is not the right thing for this company,” Charles Neivert, analyst at Dahlman Rose & Co., the top-ranked Agrium analyst according to Bloomberg News rankings, said in a phone interview from New York. “People bought Agrium for certain reasons, they knew what they were buying -- the full combination of businesses.”

Agrium has increased its dividend ninefold since December and recently announced a C$900 million ($908 million) share buyback, it said in today’s statement. On July 18, the company said second-quarter profit was 15 percent higher than forecast and its outlook was “very positive” as drought in the U.S. Midwest drives up grain prices.

U.S. Drought

The worst U.S. drought in decades has affected farmers from Arkansas to Ohio, prompting the government to pare harvest estimates. U.S. fertilizer producer Mosaic Co. (MOS), which jointly sells potash with Agrium, said last month that farm economics remain “compelling” and rising crop prices mean China is more likely to agree to higher prices for its next potash supply accord.

“We are in close contact with our shareholders and take their views seriously,” Agrium’s Wilson said today in the statement. “We are confident the vast majority understand and support our strategy.”

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net

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