Jana Partners Battle To Split Agrium Heats Up

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Activist investors have been notching so many wins recently that victory over management almost feels inevitable. Have corporate executives just thrown in the towel? Don’t be so quick to write them off, as Agrium (AGU), the Canadian fertilizer company and Jana Partners’ most recent target, is fighting back.

Before delving any deeper, it is worth noting that Agrium consists of two distinct business units. The wholesale group produces, markets and distributes nitrogen, phosphate and potash while the retail unit is the largest direct-to-grower distributor of seed, agricultural crop protection products and crop nutrients. The retail group has recently been bulked up via large acquisitions and is at the heart of the disagreement between Jana and company management.

Here is a quick recap of the Jana/Agrium tussle so far:

After holding private discussions with company management earlier this year, Jana Partners unveiled an ~5% stake in the company this past August and began openly pushing for a spinoff of the company’s retail operations. In short, Jana believes Agrium is extremely undervalued on a ‘sum of the parts’ basis as the retail operations are mostly being ignored. The firm also believes that there are both structural and operational issues within the company that has led to its relative long-term underperformance. ‘Relative’ (as in vs. its peers) being the key word as Agrium’s shares have actually fared quite well this year, up ~60%. While Jana insists that the gains are more macro driven, it is easy to see why management is willing to fight here.

Shortly thereafter, the company changed its own valuation metrics and comp set for the retail unit, substantially cutting down its value which oh by the way if true would also reduce any ‘benefits’ of a spinoff. Naturally, analysts as well as Jana questioned the validity of such a move. The two sides then sat down for a little powwow, but no agreement could be reached and both sides resumed their increasingly acrimonious public bickering.

Earlier this month, Jana laid out its case in more detail at the Value Investing Congress and the fund has since set up a website – the cleverly titled www.janaaguanalysis.com – laying out its plan for Agrium and rebutting Agrium’s management’s claims. It’s worth checking the site (and its presentations) as Jana explains the case for a spin much better than I can, but in the end, Jana believes a spin could unlock ~$50 of value in the company. Not too shabby although I doubt anyone would pay much attention if the number were much lower. The company obviously disagrees with Jana’s analysis and believes there is nothing ‘new’ in the recent presentations. It has also released its own presentations (here and here) describing how great the company is and why the retail unit is better off staying put. The company did actively respond to one of Jana’s charges – that it did not adequately return capital to investors – by announcing that it would double its dividend and that it had completed a $900m share repurchase.

As an observer, this situation just keeps getting better and I am excited to see how it will play out. Jana is obviously talented and very experienced in these situations, but Agrium’s management remains steadfast in its opposition. This could be heading to a proxy battle. Obviously, one of Jana’s biggest hurdles to overcome is that the shares are up over 60% this year. Could it be doing better? Maybe, but that is often a tougher argument to make. The fact is that most shareholders are probably pretty happy to have Agrium in the portfolio and are likely more worried about other positions.

As always, we will keep you updated.

Disclosure: Author holds no position in any stock mentioned.

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