Renowned $3.5 billion hedge fund Jana Partners has noted that Agrium’s Inc. (NYSE:AGU) (TSE:AGU) share price could shoot some $50 higher if the company pushed forward with new changes to its model. This push for change was made clear by Jana Partners founder Barry Rosenstein at the 8th annual Value Investing Congress that was hosted on Monday. The Congress was attended by other notable figures like Bill Ackman and T2 partners’ Whitney Tilson; both of who were expected to present their cases.
Rosenstein made mention of Agrium’s Inc. (NYSE:AGU) (TSE:AGU) competitors. “We think it is abundantly clear that the company has underperformed its peers,” he said.
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The gist of Rosenstein’s argument revolved around the definitive comparison of Agrium’s wholesale and retail business. Rosenstein, who has a track record in pushing for change, made remarks about Agrium’s two businesses citing that they didn’t seamlessly fit. He noted that the Canadian agriculture company was hurting from the fact it had no real retail experience. In deeper elaboration, Rosenstein revealed the lack of any relevant retail and distribution experience in Agrium’s board. In fact, a rather confident Rosenstein urged the company to spin off the retail unit in favor of an increased bullish sentiment. “We encourage Agrium to change course,” he noted.
The wholesale business, which is noted to nest the core operations of the company, was observed to be on a cyclic depression, following low potash prices. The smaller retail business, albeit deserving a higher valuation, was suppressed by the low multiple wholesale line of business.
Rosenstein’s argument suggests that there are some fundamental differences in the retail and wholesale section of the company. This is clearly evident in the cited mismanagement of working capital in the retail segment. This, coupled with ballooning wholesale expenses, exclaimed Rosenstein’s earlier point where he noted that Agrium’s two businesses did not seamlessly fit.
During the Monday congress, Jana publicly presented an improvement plan for Agrium for the first time. Apart from highlighting the noted suggestions and observations, the plan also pegged down on the numbers that shareholders think the share price should be.
Jana’s inclination towards change is understandable. By the end of June, it was estimated that the hedge fund had a 4 percent stake at Agrium. The stake doesn’t show much promise in the absence of change. This explains Jana’s continued efforts to privately persuade Agrium Inc. (NYSE:AGU) (TSE:AGU) to make changes in its costs and consider a spin off. In light of Agrium’s reluctance, Jana has gone public with its quest for change.