Jana Partners LLC
disclosed last summer that it had acquired a big stake in
Agrium Inc., a Calgary, Alberta, agriculture company, the second
recent high-profile attack in Canada by an American hedge fund.
Activist investor Bill Ackman had just won his proxy battle over
control of another Calgary-based company, Canadian Pacific Railway
But unlike Canadian
Pacific Railway, Agrium's shares had done well, making less of a
case that big changes were needed at the company, which has an array
of businesses, including mining potash for fertilizer and selling
seeds to farmers.
'If you split retail
from the rest of [Agrium], it would destroy shareholder
value,' says CEO Michael Wilson, seen last May at the annual
Since Jana made its
announcement, Chief Executive Michael Wilson has come out swinging,
saying outside proposals for boosting value—including spinning off
the company's retail businesses—won't work.
He is slated to make that
case to Wall Street on Monday. Agrium last week bumped up its
forecast for fourth-quarter earnings, citing strong performance in
its retail business, mostly in North America and Australia.
Jana says Agrium can
unlock value by considering splitting off that business. The hedge
fund also is pushing to replace five board members in a proxy vote,
likely this year, and is calling for stock buybacks and dividend
In an interview last
week, Mr. Wilson, 61 years old, called the matter a "huge
distraction" that threatens to erode shareholder value, not boost
WSJ: Did you and Agrium's
board learn anything from CP's experience with Bill Ackman that is
helpful dealing with Jana?
Mr. Wilson: We look at a
number of activists' activities to see what their motives…tactics
[and] strategies are, and we've obviously done that. In some cases,
[activism] adds value and it's useful. In other cases, it could lead
to destruction of shareholder value. If you split retail from the
rest of [Agrium], it would destroy shareholder value. If you blindly
took your working capital down so you could buy back shares to the
point where it affected your [margins for earnings before interest,
taxes, depreciation and amortization to revenue], it would destroy
shareholder value. If you stopped all your growth activities, it
would destroy long-term shareholder value, absolutely.
WSJ: Has Jana's activism
benefited Agrium and its shareholders in any way?
Mr. Wilson: It's
unfortunate we have Jana in our stock. They have a mandate to split
our company. They went out with that mandate, and they got very
little traction with our shareholders [and] with the sell side. So,
their approach changed to one of challenging the credibility of
management [and] our board.…We've generated greater shareholder
return than our peers. Our board is recognized for its governance
and oversight. Our company certainly isn't broken.
WSJ: Jana wants to
replace five Agrium directors with its own representatives, citing a
lack of retail experience. Does the current board have any
shortcomings related to retail?
Mr. Wilson: No. A board
member isn't supposed to micromanage the company. What our board
does is challenges us: "Are you understanding your costs?" "Are you
embracing continuous improvement?" "Are you looking at working
capital?" We've hired outside consultants to do a cold-eyes review
of general and administration costs twice in the last five years. A
company that is closed-minded doesn't do that.
WSJ: Will retail
experience be a prerequisite for your own choices to fill upcoming
Mr. Wilson: It's not a
prerequisite. The ideal candidate is someone who has been involved
in a growth company, has some international experience, some
financial background, either some commodity or retail background,
and has some supply-chain background. You will never fill all those
boxes and so you sit back, and take the most you can get.
WSJ: Would Agrium
consider any of the directors proposed by Jana as successors to
Mr. Wilson: That is a
WSJ: Jana wants you to
spin off retail operations. Does that fit with your strategy?
Mr. Wilson: The
integrated model has huge value for us. From a wholesale point of
view, it gives you greater operating effectiveness and efficiency.
As an example, we run our potash and phosphate business at a higher
capacity utilization than our competitors because when potash supply
is in a surplus position, we have the ability to push a large amount
through our retail [operations to be priced at market levels].
You've got supply-chain efficiencies as well as the opportunity for
WSJ: Jana says it can
generate US$50 per share of extra value for Agrium. Is that
Mr. Wilson: When we met
with Jana the first time, the majority of the US$50 came from
splitting our company, and the rest came from share buybacks and
[running] retail as well as we should. Since they've gotten very
little traction on splitting the company, they've now morphed it to
"management isn't capable of running the company and the board isn't
doing its job."
WSJ: What's your view on
Agrium's need to return cash to shareholders?
Mr. Wilson: The
priorities for our use of cash are: No. 1, preserve shareholder
value…by sustaining your assets, your dividend and by keeping, in
our case, an investment-grade balance sheet. The No. 2 [priority] is
accretive growth. The third is to return excess cash to the
shareholders in the form of increased dividends or share buybacks,
and we've done both.
Ben Dummett at