Aug. 14, 2012
/PRNewswire/ -- JANA Partners LLC today released the following statement in response to comments made today by Agrium Inc. ("Agrium") (TSX / NYSE: AGU)
"As has been reported, we have been discussing with Agrium its conglomerate structure, cost issues, operating underperformance in retail, and suboptimal capital allocation, all of which we believe have prevented Agrium from recognizing its true value potential over a long-term period. We have worked closely with industry experts in our analysis and believe our discussions with Agrium have been productive, including with respect to its recent large scale share repurchase.
"We are therefore disappointed that before these discussions have concluded Agrium would reject any topic out of hand. We also note that Agrium has addressed only its structure and has not truly addressed the cost and operating performance improvement opportunities we have identified, the fixing of which could generate billions in value. While Agrium has pointed to its short-term share price performance in 2012, the long-term value creation picture is much more relevant:
- Since Agrium acquired UAP in May 2008, which was the start of a $4 billion acquisition binge in retail, through the end of last week, the company's shares have returned 13% on the TSX, versus 57% for pure play fertilizer company CF Industries and a 163% average return for the pure play retail comps selected by the company itself, belying the company's arguments about the supposed benefits of its conglomerate structure. Returns over 1 and 3 year trailing periods also demonstrate relative underperformance.
- We believe many of these operational issues result from the lack of retail distribution experience on the board. While the board claims that its directors with midstream energy marketing and distribution experience possess this expertise, this is plainly wrong given that such operations are entirely different than traditional retail distribution. We believe this lack of expertise has resulted in suboptimal capital allocation and underperformance in Retail with respect to managing costs and working capital.
"We also continue to believe that a separation of the Retail business would unlock significant long-term value:
- Agrium's comment today that a standalone Retail business would not trade at a significantly higher multiple than it does within Agrium not only defies analyst consensus, but contradicts its own comments over the years. Agrium's CEO just last year stated that the Retail business should trade at 11x EBITDA at Agrium's analyst day.
- Agrium itself also uses a peer group for Retail that trades on average at a 10x EBITDA multiple. Today Agrium attempted to disavow this peer group in favor of one company with a $500 million market cap and 53% shareholder, and another with a 77% shareholder which has been public for 4 months, which is simply not credible. As one analyst today noted, 'Agrium now says that those carefully chosen comparables were incorrect, and we should be using other distributors that result in lower values! That raises significant questions about the assumptions Agrium made when it bought UAP and Landmark and maybe even Viterra.' ( CLSA Americas Research, August 14, 2012)
- Even if Agrium is right that the market will never appropriately value its Retail business, this argues for the pursuit of strategic alternatives, not the status quo.
"We look forward to continuing our discussion of these issues with Agrium."