Agrium Rises After Activist ValueAct Amasses Stake

Agrium Inc., the Canadian fertilizer and seeds retailer that last year fended off an activist shareholder, rose the most in more than five years after ValueAct Capital Management LLC disclosed a 5.7 percent stake.

ValueAct sees Agrium as poised to benefit from an expected recovery in crop prices in 2016, the activist hedge fund’s Chief Executive Officer Jeffrey Ubben said in an e-mailed response to questions today. They have been in talks for months and ValueAct hasn’t made any demands for a spinoff of its retail business, Richard Downey, a spokesman for Calgary-based Agrium, said today by phone.

“This is a shareholder who has indicated an interest in the long-term value they think Agrium will be able to generate,” Downey said. ValueAct, based in San Francisco, has had “normal modeling questions.”

Agrium promoted Chuck Magro to CEO from chief operating officer in January, replacing Mike Wilson. ValueAct likes Magro and believes the company’s wholesale business is consolidating, Ubben said.

Shares of Agrium surged after ValueAct said it owns 8.19 million shares in Agrium in a regulatory filing today. Agrium climbed 7.6 percent to C$104.33 at the close in Toronto after earlier gaining as much as 8.5 percent, the biggest intraday increase since March 2009. Before today, the shares had fallen 0.2 percent this year.

Agrium ranks as one of the world’s largest producers of agricultural nutrients made of potassium, nitrogen and phosphorus, and has retail businesses in Canada, the U.S., Australia, Brazil, Argentina, Chile and Uruguay.

Fertilizer Prices

Prices for crop nutrients have fallen this year as the outlook for record U.S. agricultural harvest add to global gluts of corn, wheat and soybeans, depressing prices. The Bloomberg Agriculture Index of seven farm products, excluding livestock, has tumbled 25 percent since the end of April.

“Free cash flow explodes in 2016 with a recovery in crop prices and end to capacity investments in the wholesale business,” Ubben said. We “expect significant return of capital in 2016 and beyond.”

In 2013, Agrium shareholders rebuffed a proxy battle attempt by Jana Partners LLC, the hedge fund founded by Barry Rosenstein. Jana tried to force the company to spin off its retail division, a network of agricultural outlets that sells seeds, fertilizer and crop-protection chemicals to farmers.

ValueAct is taking a different approach.

Agrium’s “retail business is stable, and provides stability in a low crop price environment,” Ubben said. “Fertilizer and potash businesses have short term issues that impacts earnings, the strategic value is significant.”

Longer View

ValueAct, which manages about $14 billion, is typically a longer-term investor than many of its peers and often seeks at least one seat on the board of target companies. The firm has helped change the direction of Microsoft Corp., Valeant Pharmaceuticals International Inc. and Sara Lee Corp., among others.

Last year, the firm helped industrial-equipment maker Gardner Denver Inc. sell itself to KKR & Co. In 2012, it attained board seats with Adobe Systems Inc. and Motorola Solutions Inc.

Canada’s rules on poison pills and the relative ease with which investors can call for shareholder meetings make the country a friendlier place for shareholder activists than the U.S., billionaire hedge-fund manager Bill Ackman said last week.

Activist investors tend to buy at least 5 percent of a company’s stock and flag their intention to actively engage management and the board by disclosing their holding in a 13D filing with the U.S. Securities and Exchange Commission.

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