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The U.S. hedge fund agitating for change at Agrium (AGU-T) says the company's lack of experience is what led it to launch a proxy fight.
"You have a company that has 30 percent of its profits come from the retail distribution side of its business, they've invested over $4 billion through acquisitions in that segment, and they have nobody, amazingly, on the board with any relevant expertise in that segment," JANA Partners' founder and managing partner Barry Rosenstein tells BNN. "That's led to a whole host of other issues. This company has the worst track record of capital allocation of any of its peers until we showed up recently."
Agrium's corporate structure, which has production and retail units, ensures that shareholders aren’t getting full value for their investment, according to Rosenstein.
"They put together a conglomerate structure -- a stable retail business with a volatile commodity-oriented manufacturing business -- causing not only operational issues, but on a valuation standpoint, the retail business trades down to the value of the lower commodity business," he says.
On Monday, JANA continued its battle to split Agrium's retail and production businesses by announcing five new candidates to the company's board, one of which is Rosenstein.
The other four candidates are David Bullock, Stephen Clark, Mitchell Jacobson, and Lyle Vanclief. Bullock is the former CFO and CEO of United Agri Products, which was acquired by Agrium.
"JANA believes that these individuals will 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," the hedge fund said in a statement.
The candidates will provide much-needed experience at Agrium, Rosenstein adds.
"The current board has no expertise in distribution of retail product in the manner that's helpful to the company," he says. He adds that three of the proposed board members have "track records of delivering value on an operating basis and a stock price basis directly in this space."
JANA is now Agrium's largest shareholder, owning about 6 percent of the company's shares.
The hedge fund has been a months-long battle against Agrium, accusing the company of "operational, structural and governance deficiencies."
Agrium has rebutted those claims, but its most recent quarterly earnings were well below estimates, adding fuel to JANA's calls for change.
Third-quarter adjusted earnings came in at $1.34 per share, far below the consensus estimate among analysts for earnings of $1.82 per share.
Agrium maintains that it has the support of shareholders.
"JANA has been trying for over six months to obtain support for its idea that Agrium should spin off or sell its retail operations. Agrium's shareholders have overwhelmingly rejected JANA's ideas," Agrium president and CEO Mike Wilson said in a statement on Monday. "As a result, we believe JANA's attempt to run its own slate for Agrium's Board is almost certain to fail."
But Rosenstein says many shareholders are lining up behind his fund's push for change.
"Unlike what the company has claimed – which is that they have overall support for their position – we have found quite the opposite. In fact, we have found that shareholders -- as we speak to them more and more and educate them -- they are very supportive of our ideas and are very glad that we are here," he says. "Shareholders are very happy that we're here."