* Proxy battle is now 'near certainty' says analyst
* Agrium names two new independent board members
* Jana says Agrium is refusing to embrace actual change
* Agrium shares dip in early trading on TSX and NYSE
By Euan Rocha and Thyagaraju Adinarayan
Feb 12 The drawn out battle between Agrium Inc and its largest shareholder Jana Partners looked set for a bruising proxy battle on Tuesday, a day after the activist hedge fund rejected Agrium's call for a truce.
The fertilizer maker and farm products retailer threw down the gauntlet late on Monday by nominating David Everitt and Mayo Schmidt as independent board members, passing over five nominees that Jana has proposed for election to Agrium's board.
"We believe that a proxy battle, as opposed to a negotiated settlement, is becoming a near certainty," said Ben Isaacson, an analyst with Scotiabank, in a note to clients.
The two sides have been locked in a war of words as Jana, a New York based hedge fund that owns 6 percent of Agrium, made a range of demands, including that Agrium spin off its retail arm and boost the level of industry experience on its board.
Agrium, the largest North American retailer of crop products like seed, fertilizers and crop protection chemicals, says keeping its retail and wholesale operations under the same roof gives the company an advantage. Its wholesale division produces nitrogen-, potash- and phosphate-based crop nutrients.
The looming 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. Last year, well known investor William Ackman used tactics similar to those being now employed by Jana to oust the board of Canadian Pacific Railway Ltd and install his hand-picked candidate as chief executive of the railroad operator.
Jana, a top U.S. activist investor, has won high-profile campaigns at companies such as Marathon Petroleum Corp and McGraw-Hill Cos Inc.
Calgary, Alberta-based Agrium has gradually expanded its retail arm through a series of deals. It believes that the business provides it with a safety net, as its wholesale business is typically cyclical.
In its statement late on Monday, Agrium said its two new independent directors bring a wealth of industry experience to its board, a nod to one of the main issues flagged by Jana.
Everitt was a long-time executive with Deere & Co, the world's largest farm equipment maker, where he was responsible for its tractor and crop care products business. Schmidt led Viterra Inc, a global agri-business that was last year acquired by Glencore International.
Jana, however, panned the choices late Monday and accused the company of making a "hollow attempt to fight off real value-maximizing change." It said Agrium is attempting to address Jana's points about capital allocation, disclosure and relevant board experience "without having to embrace actual change."
Agrium's shares dipped about 0.6 percent in early trading on Tuesday in New York and Toronto.
Agrium last year doubled its dividend payout and completed a C$900 million ($894 million) share buyback amid pressure from Jana. At a meeting last month, Agrium also provided analysts with much more detail on its retail arm, addressing another of the issues highlighted by Jana.
Although it remains confident that Jana will not defeat it in a proxy battle, Agrium said it reached out to Jana before naming its new directors in order to negotiate a truce.
Agrium said Jana agreed to halt its pursuit of a break-up in return for naming one of its director nominees to the Agrium board. However, the company said Jana reneged on the deal at the last minute by demanding at least two seats on its board.
"We are disappointed in Jana's decision to prolong this fight which it is certain to lose. Shareholders are clearly not supportive of Jana's initiative to break up Agrium," Agrium's CEO Mike Wilson, said in a statement.