Must-know assessment: JANA Partners' positions in 4Q 2013 (Part 8 of 8)
JANA Partners exited its position in Agrium Inc. (AGU) last quarter. Agrium was a 10.43% position in JANA’s 3Q 2013 portfolio. Agrium, based in Calgary, Alberta, engages in the retail of agricultural products and services.
The exit was highlighted in JANA’s year end letter to investors where the hedge fund said, “Activism was an important contributor to performance, and returns on capital increased as the year progressed but in aggregate were below our expectations, weighed down primarily by Agrium (AGU), which we have now exited completely. Looking back on this investment, we believe our thesis regarding the need for change was confirmed in large part by the positive steps that followed our involvement, including improvements to the company’s capital allocation policy, disclosure, compensation structure, and cost management, all of which significantly benefited shareholders, and by the board’s addition of two new directors intended to address the lack of relevant industry expertise that we identified. We also believe that the need for an honest review of Agrium’s corporate structure has been confirmed by the negative impact of recent industry headwinds facing its wholesale business, which have dragged down its overall valuation including its already undervalued retail business, an outcome which could have been avoided. Even in light of the company’s poor recent performance, however, the company and even many shareholders still appear to prefer a “more stable” combined company with a lower valuation than two independent companies with a significantly higher combined value. We have therefore moved on rather than fighting an intransigent board and management team again this year.”
The Agrium stake was revealed in August 2012. The company was pressured by activist investor JANA to return capital to shareholders and split its wholesale fertilizer and retail business. JANA also lost a proxy fight for five of Agrium’s 12 board seats at Agrium’s annual meeting last year. JANA, which was Agrium’s largest shareholder with a 7.5% stake, pared its holding in the company to 2.7% in October of last year. JANA stated in an SEC filing that it was pleased with the progress made by Agrium of raising its annual dividend by 50% to $3.00 per share and initiating management changes.
Agrium’s fourth quarter net earnings declined 72% to $99 million, or $0.66 per share, from $354 million, or $2.34 per share, a year ago. Revenue fell 7% to $2.9 billion. Chuck Magro, Agrium’s President & CEO said, “Retail achieved record fourth quarter results due to increased margins across almost all shelves. Our Wholesale business unit, which has more direct exposure to volatility in nutrient markets, saw their results impacted by lower global prices across all nutrients. Global nitrogen and phosphate markets have firmed significantly in early 2014 in response to what we expect will be a strong spring season.” The retail segment growth was also driven by the addition of Viterra’s Canadian retail assets. Agrium acquired certain Retail Canadian and Australian agri-products assets of Viterra from Glencore International plc in October last year.
After conducting a strategic review of Agrium Advanced Technologies (AAT) in 2013, a decision was made in December 2013 to transition the agriculture business of AAT back into its wholesale business unit. AAT’s agriculture business comprises Environmentally Smart Nitrogen (ESN) and micronutrients. The Turf and Ornamental and Direct Solutions businesses are under further strategic review with all options, including divestiture, being considered. The review is expected to be completed in the first half of 2014.
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