Agrium Fight With Jana on Strategy Hurts Stock

The battle Agrium Inc. is waging with activist investor Jana Partners LLC over the fertilizer producer’s strategy is weighing on its shares just as the outlook for commodities fades.

Agrium dropped 14 percent from a record Jan. 25 close in Toronto, compared with a 4 percent dip for the benchmark Standard & Poor’s/TSX Composite Index, as concern over global economic growth caused commodity prices to decline. Jana, the largest shareholder of Calgary-based Agrium, has been pushing for changes since May and proposed five nominees for 12 positions on the board of directors. The results of a shareholder vote were scheduled to be disclosed tomorrow.

“The worst case emerging is where there is no winner and no loser,” Alexander Roose, a Brussels-based portfolio manager who oversees about $300 million including Agrium shares at Petercam SA, said in an April 4 telephone interview. “I don’t think that’s something investors want.”

The election of even one of New York-based Jana’s nominees would potentially hurt the company by eroding the cohesiveness of Agrium’s board, Roose said.

Agrium has been publicly feuding with the hedge fund since mid-August, when Agrium Chief Executive Officer Mike Wilson said in a statement he had evaluated and rejected Jana’s proposal that Agrium split off its retail farm-products businesses from its wholesale fertilizer unit.

‘The Mud’

Since then, Agrium has put out at least 15 statements about Jana, and the hedge fund has responded with at least 20 of its own, including one in February entitled “Jana Declines Agrium’s Invitation to Join It in the Mud.” Among other things, Jana has accused Agrium of mismanagement and said the board lacks appropriate experience, while Wilson, 61, has called Jana’s analysis “deeply flawed.”

Jana accused Agrium last week of “vote buying” by offering to pay a fee to investment advisers and brokers for shares voted in favor of Agrium’s directors, according to a Jana statement on April 1.

“Between the two parties a lot of bad blood has been happening and I don’t think that’s something you can make up in a couple of months,” Roose said. In the absence of a clear winner or loser in tomorrow’s election, Agrium’s shares will be “dead money, at best,” he said.

‘Like Babies’

Charlie Penner, a Jana spokesman, said no matter how many Jana-sponsored directors are elected, they would be a minority and would have no choice but to work collaboratively with the full board.

“You will have 12 people in that boardroom with long and successful careers in various fields who got to where they are not because they fight like babies over disagreements, but because they can all work well with others in the pursuit of a common goal,” Penner said April 5 in an e-mail.

Agrium declined to comment on how the results of the shareholder vote will affect the company’s prospects, Joel Shaffer, an external spokesman at Longview Communications Inc., said April 5 by telephone.

Jana faces “a steep challenge” in getting even one of its nominees onto Agrium’s board, Matthew Korn, a New York-based analyst at Barclays Plc, said in a March 28 note to clients. It’s unclear how much influence Jana’s nominees would have on the board even if they managed to get substantial representation, Korn said.

‘The Uncertainty’

“The uncertainty is what impact would a subset of directors have on how Agrium would function,” Korn said in a telephone interview April 4.

Jana’s nominees to Agrium’s board are the fund’s co-founder and managing partner Barry Rosenstein; David Bullock, a former chief financial officer of Graham Packaging Inc.; Stephen Clark, the former CEO of German chemicals distributor Brenntag AG; MSC Industrial Direct Co. Chairman Mitchell Jacobson; and Lyle Vanclief, a former Canadian minister of agriculture.

Bullock didn’t return requests for comment on behalf of the nominees on the vote and strategy made on April 5.

Jana said today in a statement it believed that both Rosenstein and Bullock appear to have enough votes to be elected to the board.

The $4.9 billion event-driven hedge fund, founded in 2001, invests in companies undergoing changes such as mergers, spinoffs and bankruptcies.

Agrium has a network of more than 1,200 agricultural retail outlets in the U.S., Australia, Canada, Chile and Argentina that market seeds, fertilizer and crop-protection chemicals to farmers. The company also produces fertilizer products containing nitrogen, potash and phosphates.

Retail Business

Agrium generated 66 percent of sales from its retail operations last year, while the wholesale fertilizer business accounted for 31 percent, according to data compiled by Bloomberg.

Jana contends the full value of the retail unit is lost within Agrium, while Agrium has argued it provides a useful offset to downturns in commodity markets.

Agrium, which rose 0.9 percent to C$98.62 at 9:49 a.m. today, has declined 9.3 percent in the past month as prices for crops have tumbled, potentially leaving less money in farmers’ pockets to buy ammonia and other crop nutrients. Corn, soybeans and wheat, the biggest U.S. crops along with hay, have slid into bear markets with drops of more than 20 percent from 2012 highs, amid forecasts for a bumper crop and slowing growth.

Assuming normal weather patterns, global corn production will climb 15 percent to a record 975.65 million metric tons in the year beginning July 1, from a year earlier, Informa Economics Inc. said last week in a report to clients.

‘Not Picked Sides’

The International Monetary Fund in January cut its global growth forecast for this year to 3.5 percent from the 3.6 percent forecast by the agency in October, citing a lack of progress in solving the euro region’s debt crisis.

The eroding commodity market is a bigger issue for Agrium, and its “fine” management team may be distracted by a Jana victory, said Robert Winslow, a Toronto-based analyst at National Bank Financial.

“We have not ‘picked sides’ in the current proxy battle since we believe this event is largely immaterial to the downside agricultural cycle risks facing Agrium in 2013,” Winslow said in an April 3 note. Winslow, who rates the stock underperform, the equivalent of a sell, said his C$91.50 ($89.74) target has “material” downside should grain prices continue to slide.

‘Very Limited’

While Agrium dismissed many of Jana’s proposals and concerns, the company has moved to improve transparency, added directors with experience in bulk agricultural commodities, raised its dividend and bought back shares. After the battle with Jana became public in August, Agrium’s shares rose as much as 20 percent before starting to decline after Jan. 25.

The activist fund also has urged Agrium to boost capital returns, improve disclosure and reduce costs and working capital.

“The only movement that Agrium has been making as a company has been very limited and only as a result of the pressure exerted by Jana,” Steve Tabb, a New York-based portfolio manager at Tocqueville Asset Management LP, said in an April 4 telephone interview.

Agrium will earn per-share profit, excluding one-time items, of $10.09 this year, according to the average of 25 analysts’ estimates compiled by Bloomberg. That’s 6.8 percent more than the $9.45 the company earned in 2012.

Some investors say a win by Jana would be positive for Agrium.

Jana Backers

“If all five Jana nominees are elected, they surely will change the board dynamic, and for the better,” Horst Hueniken, a Toronto-based portfolio manager at Dundee Corp. who exited his position in Agrium shares earlier this year, said April 4 in an e-mail. It “will make Agrium stronger, rather than dysfunctional.”

Tabb said investors shouldn’t underestimate the ability of Jana’s nominees to effect change at Agrium. He said he cast all of his votes in favor of the dissident slate.

“If they get two people on the board, they would be in a position to seek and get a lot of information,” Tabb said. “It may not be as effective as having five, but they could be effective.”

Korn sees Agrium shares returning to highs no matter what happens tomorrow.

“We continue to favor Agrium shares through the volatility brought about by the current proxy contest and the market’s current seasonal bearish speculation on crop prices,” Korn said in a March 28 note to clients.

‘Opportunities’ Exist

Agrium management got a boost for their side on April 5 when Canada Pension Plan Investment Board said it would vote in favor of existing directors.

Jana “failed to make a compelling case for change at Agrium,” CPPIB said on its website. “While we agree that opportunities for improvement exist, we are of the view that the dissident’s nominees do not represent the best alternative for optimizing long-term value creation.”

The Toronto-based board managed C$173 billion of Canadians’ pension savings as of the end of 2012 and owned 1.2 million shares as Agrium as of March, Linda Sims, a CPPIB spokeswoman said by phone.

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