Agrium: Can ValueAct Succeed Where JANA Failed?

Agrium: Can ValueAct Succeed Where JANA Failed?

Agrium Inc. (NYSE:AGU) (TSE:AGU) has regained all of the ground that it lost over the last month now that ValueAct Capital has filed a 13D form with the SEC revealing that it has taken a 5.7% stake in the Canadian agriculture company. For investors familiar with ValueAct’s track record this looks like a big, long-term plus for the stock, especially since the activist investors started investing well before the dip.

JANA, ValueAct investments in Agrium show two sides of activist investing

Along with accepting activism as a legitimate strategy, mainstream investors are also developing a more nuanced view of what activism entails, and it shows up in the reaction you see from different campaigns. Two years ago JANA Partners started an activist campaign against Agrium Inc. (NYSE:AGU) (TSE:AGU), trying to persuade the company to spin-off a retail unit or convert some of its holdings to a Master Limited Partnership (MLP) structure that gives certain tax benefits to companies that get revenue from processing natural resources. The campaign was in full effect for nearly a year before JANA finally started to back away.

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This time around, there hasn’t even been a campaign to speak of. ValueAct Capital started picking up shares at the end of August for just under $94 per share. When Agrium Inc. (NYSE:AGU) (TSE:AGU) stock fell below $85 the hedge fund may have altered the number of stocks it intended to buy, but the overall strategy was already well in place, they just hadn’t told anyone about it. Since they were perfectly willing to buy at that price, you can understand why the market reversed course, pushing the stock from $86.40 to $94.50 in the last two days.

Ubben says he’d ‘build the company’ than reinvest

For a value investor looking to follow a major fund into a trade, it makes more sense to watch funds like ValueAct than JANA Partners because you know they intend to stick around for a while and they’ve already engaged with management so there’s much less chance that you will stick around for an extended proxy fight that doesn’t get anywhere.

You can see the two different approaches on display at a Milken Institute panel from earlier this year when a panel of activist investors, including JANA Partners founder Barry Rosenstein and ValueAct Capital founder Jeffrey Ubben among others. While Rosenstein repeatedly says that his approach to activism often has an immediate impact that lets him take his profits and move on to the next deal, Ubben thinks that even a couple years may be too brief for serious activism.

“It’s still too short term,” says Ubben. “When you can get involved in a high quality business, and you can get yourself on a board with a management team that you trust and you’re driving the capital allocation process, you have the opportunity to eliminate reinvestment risk and to not try to find the next new activist play but to build the company.”

If Ubben thought that $94 was a good entry point for a long-term investment in Agrium Inc. (NYSE:AGU) (TSE:AGU), then he must have thought $85 was an absolute bargain. And now that Agrium is on our radar it may still be worth a closer look in the mid-90s.


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