UPDATE 3-Jana launches proxy battle, pressures Agrium for change

Mon Nov 19, 2012 2:38pm EST

* Jana names 5-member slate for election to Agrium's board

* Agrium says Jana's attempts are almost certain to fail

* Agrium shares rise more than 2 pct in New York, Toronto

By Euan Rocha

Nov 19 (Reuters) - Hedge fund Jana Partners on Monday escalated its effort to overhaul Canada's Agrium Inc by nominating a slate of board candidates to buttress its demand that the fertilizer company split up its wholesale and retail divisions.

New York-based Jana, Agrium's largest shareholder, has been pressuring the fertilizer maker and farm products retailer for months. It wants Agrium to spin off its retail arm, cut costs, return cash to shareholders and improve disclosure.

The firm, which owns a 6 percent stake in Agrium, named its managing partner, Barry Rosenstein, and four independent nominees for election to Agrium's 11-member board. The move sent shares in Agrium up more than 2 percent on Monday.

"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," the hedge fund said in a statement.

The proxy fight is the latest in a series of high-profile battles led by activist investors seeking to shake up the management of leading Canadian companies. Earlier this year, investor William Ackman, using tactics similar to those employed by Jana, succeeded in installing his hand-picked candidate as chief executive of Canadian Pacific Railway Ltd.

The main point of contention between Jana and Agrium is whether a retail spin-off would create value for shareholders. Agrium contends its strategy of integrating its wholesale and retail arms helps provide steady earnings, even during downturns in the volatile agricultural sector.

Agrium Chief Executive Mike Wilson said he was confident the Jana proxy fight would fail.

"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," Wilson said in a statement. "As a result, we believe Jana's attempt to run its own slate for Agrium's board is almost certain to fail."

Agrium already owns the biggest network of farm retail stores in the United States, where it sells fertilizers, seeds and crop protection chemicals. It is in the process of expanding its retail presence in Canada via the acquisition of retail stores that Glencore is selling following its takeover of Viterra Inc, a grain handler and farm products retailer.

DRAWN-OUT BATTLE

Jana initially disclosed it that had acquired a stake in Agrium in August, weeks after it had already begun to meet with shareholders and analysts to argue the merits of a spin-off.

Agrium has steadfastly refused to consider spinning off its retail arm, while seeking to placate disgruntled shareholders by raising its dividend this year and completing a share buyback.

Agrium's shares have risen more than 40 percent this year - which each side says bolsters its own case for what's best for the company.

Alta Corp analyst John Chu said the company has also begun to provide increased transparency in reporting operational efficiencies for its retail division.

"Jana's continued investment in Agrium should bode well for the stock as we expect this to yield more transparency for the retail segment going forward, regardless of whether Jana is eventually successful in appointing new members to Agrium's board," said Chu in a note to clients.

Agrium's U.S.-listed shares were up 2.7 percent at $100.19 in midday trading. Its Toronto-listed shares were up 2.1 percent at C$99.90.

PROXY BATTLE

Jana, a top U.S. activist investor, has won high-profile campaigns at companies such as Marathon Petroleum Corp and McGraw-Hill Cos Inc. It said its proposed nominees for Agrium's board bring a lot of experience to the table.

In addition to Rosenstein, Jana's slate includes David Bullock, Stephen Clark, Mitchell Jacobson and Lyle Vanclief.

The fund said Bullock was formerly chief financial officer and chief operating officer at United Agri Products, now a part of Agrium's retail arm. Clark and Jacobson are former chief executives of companies that Agrium has cited as peers of its retail business.

Final independent nominee Lyle Vanclief is a former Canadian minister of agriculture and a former member of parliament.

Scotiabank analyst Ben Isaacson said he is watching for a negotiated settlement between the two sides, before a mid-2013 proxy contest ensues.

"We continue to believe that while some of Jana's criticisms are valid, others, such as Agrium's underperformance, are overstated. We also think that some of Jana's proposed fixes offer no certainty of enhanced value realization, especially a retail-wholesale split," said Isaacson in a note to clients.

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