Agrium fires back at Jana's plan to split company

Published online: Jan 31, 2013

Canadian fertilizer company Agrium Inc. will not split its wholesale and retail divisions as its biggest shareholder, Jana Partners, wants because doing so would "destroy value" for shareholders, Chief Executive Mike Wilson said on Monday.

Wilson was speaking in New York to Agrium's sell-side analysts in an attempt to blunt Jana's move to replace some of Agrium's board and effect changes that Jana says would increase returns to investors. In his remarks, Wilson ruled out a break-up of the company, and released a sharply higher earnings forecast for the fast-growing retail division, which sells seed, fertilizer and chemicals to farmers.

Wilson said Jana preferred to talk to Agrium's shareholders and analysts rather than to the company itself, although Agrium and Jana had reached an understanding last spring that they would keep their talks on improving the company private.

"They'll say one thing and do the opposite ... They're good at breaking up companies," Wilson said. "They're very good at saying, 'Why not just engage some ideas?' The answer is, if we do, we'll destroy value for our company, and we're not about to do that."

The company forecast that EBITDA (earnings before interest, taxes, depreciation and amortization) for the retail business would climb to $1.3 billion by 2015, up from its previous target of $1 billion and a jump of over two thirds from 2011. The growth will come mainly from its pending purchase of Viterra's retail chain, smaller buys and organic growth, Agrium said.

The revised forecast comes after the company boosted its fourth-quarter profit outlook on Thursday.

Wilson said a share buyback last year and increases in the company's dividend have had nothing to do with the pressure put on Agrium, the largest U.S. farm retailer, by Jana.

Shares of Agrium, which has a market cap of $17.1 billion, were down slightly around midday on Monday in New York and Toronto, but were still near record highs.

The company has grown dramatically from a market cap of just $2.1 billion a decade ago, acquiring U.S. farm retailers Royster Clark and United Agri Products (UAP) in 2006 and 2008 respectively, and Australia's AWB Landmark in 2010.

Wilson said Agrium is not planning any major acquisitions beyond its pending purchase of most of the Viterra farm retail business in Canada and Australia from Glencore International PLC . The company expects regulatory approval by the end of the second quarter.

Rising grain prices during the past five years, especially due to growing demand in developing countries China and India, and recurring drought in key farming areas have helped push Agrium's stock higher. It has also benefited from dropping prices for natural gas, a key ingredient in making nitrogen-based fertilizers.

Jana, a New York based hedge fund that owns 6 percent of Agrium, said last week that it was meeting in Canada with Canadian shareholders, who make up an estimated one-third of Agrium's ownership. Jana said Agrium has refused to openly discuss all ways to improve the company's performance.

A spokesman for the hedge fund said it intends to comment later in the day.

Along with splitting the wholesale and retail divisions, Jana has said it wants the company to make better use of capital, control retail and corporate costs and improve disclosure to shareholders.

Wilson said keeping Agrium's wholesale side - which produces nitrogen and mines potash and phosphate - combined with its chain of farm retail stores, helps the company understand supply and demand fundamentals, giving it an advantage in a highly competitive sector.

While Agrium said it is wary of releasing too much detail that its privately held competitors could use, the company addressed each of Jana's suggestions.

Jana has raised concerns about the geographic overlap among Agrium's more than 900 farm retail stores in North America. But vice-president of distribution Tom Warner said Agrium has closed 20 percent of its U.S. farm stores in the past seven years, and needs to remain in some areas to win farmers' business.

Jana has also criticized Agrium for maintaining working capital for the retail division at too high a level. Agrium countered by saying that its ratio of working capital to revenues is lower than that of UAP, before Agrium acquired it.

In November, Jana nominated a slate of five candidates to Agrium's 11-member board to buttress its demand that the company split up its wholesale and retail divisions.

"As far as I'm concerned, we've got a fantastic board and an excellent management team," Wilson said. "(Jana's) best decision was buying our stock."

In an Oct. 1 presentation to an investor conference, Jana said Agrium's share price could rise by about $50 if the company took steps to improve its business.