Nov. 19, 2012
/PRNewswire/ -- JANA Partners LLC today announced four independent director candidates it intends to propose together with JANA Managing Partner Barry Rosenstein for election to the Board of Agrium Inc. ("Agrium") (TSX / NYSE: AGU):
, and The Honourable Lyle Vanclief. JANA believes that these individuals will add critical oversight to a Board that for years has tolerated suboptimal capital allocation, failure to manage costs, structural issues, lack of transparency, and share price underperformance relative to a weighted average of Agrium's peers and to its potential. JANA, which was already Agrium's largest shareholder, also disclosed that its stake has risen to more than 6% of Agrium's shares. Updated information is available at
Three of JANA's candidates are seasoned distribution executives with proven records creating value as operators, and in some cases directors, at companies recently cited by Agrium as peers for its distribution business ("Retail"), while none of Agrium's current independent directors have such experience despite the substantial size and significance of Retail. These individuals also have direct experience operating distribution businesses in the U.S., Retail's principal market, as well as other geographies. JANA's fourth independent candidate is the former Canadian Minister of Agriculture, who will bring to the Board his experience dealing with complex agricultural issues in government as well as his prior direct experience operating a commercial farm.
"Agrium's Board has had every opportunity to respond constructively to our analysis, and instead simply attempted to avoid the issues," said Rosenstein, citing the following governance lapses:
- Refusal to Respond: As one leading analyst who has not sided with JANA or Agrium noted, "the consensus seems to be that Agrium is going out of its way to avoid addressing JANA's questions head on" and "the depth and breadth of unanswered questions at Agrium makes it a clear and troubling outlier in an industry known for relatively good disclosure practices." ( CLSA, Nov. 5, 2012)
- Manipulative Analysis: When challenged to address Retail's undervaluation, Agrium simply changed the Retail valuation comparables it had advocated for years to include new lower-multiple (and in most cases inapplicable) "midnight" comparables in order to avoid the issue. Referring to this "switcheroo," a Wall Street Journal writer noted "it seems odd that Agrium, having done so many retail deals, would have directed analysts toward such a different peer group only last year," which "also calls into question how much value really has been created by Agrium's retail strategy." ( Aug. 21, 2012)
- Failing to Keep Shareholders Informed: Agrium kept shareholders in the dark before its recent significant earnings miss, despite having embarked on a lengthy shareholder outreach tour to tout its short-term performance following JANA's engagement, and also repurchased significant amounts of its stock at much higher prices just before this miss led to a significant stock price decline. This means that the Board either sought to keep this news from shareholders for as long as possible or has no handle on Agrium's business, neither of which is acceptable.
- Unverified Claims of Support: Rather than discuss the merits, Agrium claims that shareholders support the status quo, yet independent observers refute this claim and Agrium has begun implementing some of JANA's proposals, including dramatically increasing its capital return and improving its disclosure. In the words of one Globe & Mail writer, "For a firm that says it has strong support from an overwhelming number of shareholders, Agrium Inc. is sure doing what it can to keep them happy." ( Oct. 22, 2012)
- Abdicating Judgment to Mercenary Advisors. To defend its structure and strategy, Agrium turned to the same defense bankers at Morgan Stanley that argued against its structure and strategy in defending CF Industries against Agrium's hostile takeover attempt. As one analyst noted, "the Board's response to very reasonable questions was to hire the most anti-shareowner advisor it could find." ( CLSA, Nov. 5, 2012)
JANA's candidates collectively possess the skills and experience to help the Board address, rather than avoid, the critical issues facing Agrium including:
- Driving Operational Performance: Despite spending more than $4 billion in Retail acquisitions, Agrium has failed to leverage this growth to manage operating costs the way other distribution companies have, causing Agrium to substantially underperform its potential, while JANA's candidates with distribution experience have helped successfully integrate and grow distribution businesses including realizing substantial cost synergies and margin expansion. In addition, Agrium has failed to utilize best-in-class Retail metrics to appropriately measure performance over time and set future performance targets, which JANA's candidates can help address given their experience.
- Improving Capital Allocation: Agrium has consistently failed to generate acceptable returns on acquisitions and investments, properly manage working capital in Retail, and, until prodded by JANA, had the worst record among peers in returning capital to shareholders, while JANA's candidates have the experience to address these issues.
- Fixing Agrium's Structure: Given Retail's persistent undervaluation, Agrium is in dire need of an unbiased review of its conglomerate structure free of the tainted advice of its current mercenary defense advisors who have been tasked with defending the status quo. The importance of addressing Retail's undervaluation honestly was recently highlighted by a leading industry analyst who has not sided with JANA or Agrium, and who noted that "we view JANA Partners' campaign to have the company spin off retail and increase cash distributions to shareholders as a positive as it highlights the hidden value of retail." ( Susquehanna Financial Group, Nov. 8, 2012)
, who has more than 30 years of distribution experience, commented that, "Agrium has enormous additional value creation potential, and I'm confident that I can put my distribution experience to work helping the board to unlock that value for all shareholders."
"At the end of the day, Agrium's future is in the hands of its shareholders," Rosenstein added, "and we believe they will overwhelmingly support change to realize Agrium's true value."