Agrium Inc. (AGU) cut its estimate of the value of its farm-supply retail unit by at least 38 percent the same day that hedge fund Jana Partners LLC went public with a proposal to spin off the division.
The Calgary-based fertilizer producer told research analysts that the retail unit, if separated, might trade at less than eight times earnings before interest, taxes, depreciation and amortization, according to Paul Chapman, an analyst at BMO Capital Markets. In June 2011, Agrium Chief Executive Officer Michael Wilson said the retail unit was worth 11 times Ebitda or more.
“The company appears to be changing their messaging from previous statements made with regards to the value of retail, becoming more conservative on the back of recent events,” Chapman said in a research note yesterday.
Agrium and Jana officials met in the activist hedge fund’s New York offices today to discuss Jana’s proposals, they said in separate statements. Barry Rosenstein, who runs Jana, said in his statement that Jana would continue to push for its proposals. Agrium said it has no plans to change course on the retail unit.
Agrium made the change in presentations sent to research analysts yesterday, said two people with knowledge of the situation. That’s the same day Jana disclosed that it took a 4.1 percent stake in the fertilizer producer. In the presentations, Agrium cited valuations of six publicly traded companies to measure the unit’s value -- different companies than the five Wilson used in 2011, said the people, who asked not to be named because the matter is private.
The six companies Agrium cited as peers yesterday were Brenntag AG, Beacon Roofing Supply Inc., Airgas Inc. (ARG), MRC Global Inc., Metals USA Holdings Corp. (MUSA) and Reliance Steel & Aluminum Co., said the people. Those companies trade at a median multiple of 9 times the last 12 months’ Ebitda, and 8 times 2012 Ebitda as estimated by analysts, according to data compiled by Bloomberg.
The five companies Wilson cited in his 2011 presentation were Tractor Supply (TSCO) Co., Watsco Inc. (WSO), Wesco International Inc., W.W. Grainger Inc. (GWW) and Genuine Parts Co. Those companies trade at about 11 times trailing Ebitda and 10 times this year’s Ebitda, the data compiled by Bloomberg show.
Tractor Supply, whose business model Wilson said last year was “close” to that of Agrium’s retail unit, trades at about 12 times trailing Ebitda and 12 times 2012 Ebitda, the data show.
Based on the Agrium retail unit’s $921 million in Ebitda over the past 12 months, it would be worth about $10 billion using Agrium’s old list of peers, and about $8 billion using the new list.
Agrium said in a statement today that the comparisons it made a year ago have “little to do with how retail would trade in today’s market as a separate public company.” The company added that its bankers at Morgan Stanley recently “provided additional information on an appropriate peer group.”
“Agrium seems to be talking down the value of the retail business, even as it moves to expand it,” said Mark Connelly of Credit Agricole Securities USA Inc. in a research note yesterday.
The stock rose 2 percent today to $98.78 as of 4 p.m. New York time, the highest level since July 2008.
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