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Winnipeg Free Press - PRINT EDITION

Pressure to split Agrium good for shareholders: analysts

By: Lauren Krugel

Posted: 08/17/2012 1:00 AM | Comments: 0

CALGARY -- Pressure from Jana Partners LLC is a good thing for shareholders of Agrium Inc. -- regardless of whether or not the fertilizer giant splits off its retail arm, analysts say.

Although their firm remains "agnostic" about the idea of breaking Agrium in two, analysts Mark Connelly and Kurt Schoen of CLSA Asia-Pacific Markets say the exercise should help shareholders better understand how well the retail segment is really performing.

New York activist hedge fund Jana has become Agrium's largest shareholder with a four per cent stake and has called on the company to, among other things, spin off its retail segment in order to better reflect its value.

It argues the company's costs are too high and has taken issue with how Agrium (TSX:AGU) allocates its working capital.

Agrium produces the three main types of fertilizer -- potash, nitrogen and phosphates -- and then sells those products and others to farmers through its retail business.

The Calgary-based company's board of directors unanimously agrees getting rid of retail poses too big a risk and shareholders are better served if the company remains integrated.

Officials with Agrium and Jana met in New York on Wednesday, and shortly after Jana founder Barry Rosenstein wrote a letter to Agrium's board of directors lambasting the company for its "scorched earth" approach to resisting the suggested changes.

Connelly and Schoen said they also spent time with Agrium management on Wednesday, and were surprised the company hasn't found more common ground with the hedge fund.

"We'd suggest that both sides should be in clear agreement that Agrium Retail isn't getting as fully valued in Agrium's stock price as it could be," they wrote in a note to clients Thursday.

The analysts said Agrium doesn't disclose enough information about its retail segment to help investors understand how valuable it is or how well it's doing.

One sticking point that's come up throughout the debate is how to value Agrium's retail segment as an independent entity, since there are no publicly traded agricultural retailers to compare it to.

Jana has accused Agrium of switching its list of comparable peers just as news of the hedge fund's involvement was becoming public. Jana says Agrium is trying to downplay the value of its retail segment in order to bolster its argument the business would perform poorly on its own.

Agrium counters by saying its financial adviser, Morgan Stanley, advised it to freshen up its list of so-called "comps," as it was still relying on those of UAP, the U.S. retailer it acquired back in 2008.

"Jana has done investors a tremendous service in highlighting the gaps in the Agrium retail story, and if the business is as good as Agrium management told us it is, then there is a clear and compelling opportunity to share that news more effectively with investors, and drive the stock higher," wrote Connelly and Schoen.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition August 17, 2012 B14

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