Jana Partners LLC might launch a proxy fight with Agrium Inc. (TSE:AGU) (NYSE:AGU), after increasing its stake in the company by more than 6 percent. The hedge fund is now the largest shareholder of the Canadian agriculture supply company and it is pushing for governance changes.
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Jana wants Agrium to spin off its farm-supply retail network, and to change its board directors. The hedge fund is nominating five executives to the board of Agrium, including Barry Rosenstein, managing partner of Jana, David Bullock, former chief financial officer of Graham Packaging Inc., Stephen Clark, former CEO of Brenntag AG (XETRA:BNR), Mitchell Jacobson, Chairman of MSC Industrial Direct Co., and former Canadian Minister of Agriculture, Lyle Vanclief.
In a statement, Jana said, its nominees to board of directors of Agrium would, “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.”
In addition, Jana also recommended a tax-free separation of Agrium Inc. (TSE:AGU) (NYSE:AGU)’s network of farm-supply outlets from its wholesale arm, boost capital returns, cut costs, to improve its working capital and disclosure.
During the 8th Annual Investing Congress last October 1, Rosentein said the stock value of Agrium could climbed by an additional $50 or more, if the company would make the necessary changes to its current business structure. “We think it is abundantly clear that the company has under performed its peers,” expressed Rosenstein during the event. The shares of Agrium are trading around C$ 99.77 per share on Monday morning at the Toronto Stock Exchange.
In addition, Rosenstein emphasized that the company is hurting because the board of directors of the Agrium do not have real experience in the retail industry.
On the other hand, Agrium Inc. (TSE:AGU) (NYSE:AGU) CEO Mike Wilson rejected the proposal of the hedge to spin off the company. According to him, the existing structure and strategy of Agrium Inc. (TSE:AGU) (NYSE:AGU) is best for its shareholders.
Earlier this month, Wilson announced that Agrium improved its financial transparency, with data showing its operating capital and profit margins. The company also promised to report its same-store sales twice, every second and fourth quarters of the year.
“Agrium’s future is in the hands of its shareholders. We believe they will overwhelmingly support change to realize Agrium’s true value,” said Rosenstein in a press statement today.
Adam Schatzker, an analyst at RBC, sums up the changes which JANA PArtners wants to implement:
• reviewing Agrium’s current business structure with a consideration towards separating the company’s Retail and Wholesale segments into separate businesses
• leveraging the size of Agrium’s Retail business to reduce operating costs, realize additional synergies, and expand margins
• improving Agrium’s capital allocation strategy and increasing return on capital
Jana Partners has approximately $3.5 billion in assets under management. The hedge fund also pushed the McGraw-Hill and Company (NYSE:MHP) to spin-off its education business unit, McGraw Hill Education and Marathon Petroleum Corp. (NYSE:MPC).