I recently wrote about the boardroom drama between Agrium Inc. (USA) (NYSE:AGU) and JANA Partners. To recap, JANA, a hedge fund, is Agrium’s largest shareholder, and since last summer, it has been pressuring Agrium to spin off its retail division, increase dividends and share repurchases, and make other operational changes that JANA believes will unlock tremendous value for shareholders. According to recent filings, JANA has increased its stake in Agrium, and its board member candidates have also taken positions in the company. Combined, they now own about 7.6% of Agrium’s stock.
But who is JANA, anyway? How does this situation compare with its previous investments?
A seat at the table
JANA is an event-driven, activist hedge fund. Its purpose is to determine whether a particular company may benefit from certain changes — say, spinning off a retail division, or converting certain operations into tax-advantaged master limited partnerships — and, if so, JANA takes a sizable position in the company and attempts to persuade management to make those changes. If it does, it reaps a profit.
Since Agrium’s management hasn’t been open to many of JANA’s ideas, its new goal is to get a slate of boardroom directors appointed that can push management in the right direction — ones that will be less of a rubber-stamp committee than the current board. Agrium has been aggressively campaigning against JANA, and while both sides have some valid points, Agrium has taken an absolutist stance and has essentially rejected all of JANA’s ideas.
By the time my article had been published, the drama had flared up again. JANA and Agrium had been engaged in talks over a compromise that would give JANA a single seat on the board of directors, on the condition that JANA give up its very public campaign for changes at the company, which would sort of defeat the point. Those talks have now fallen apart, with Agrium claiming that JANA reneged on the agreement at the last minute and demanded two board seats instead of one, while JANA claims that Agrium reneged on the agreement by refusing to even consider any of JANA’s proposals.
Agrium has instead announced the appointment of two different board members, one of which, a former executive at Deere & Company (NYSE:DE), has no real retail experience, while the other is the former CEO of Viterra, another conglomerated agribusiness retailer recently acquired by Glencore International Plc (LON:GLEN). It’s probably little coincidence that as soon as Glencore completed the acquisition in December, Agrium in turn acquired Viterra’s retail operations from Glencore. To the conspiracy theorist, handing a board seat to the former CEO of a company Agrium just acquired, in a transaction that earned him more than $30 million, lends some credence to JANA’s claim that Agrium “set forth a litmus test that such directors would not question management’s prior performance or strategy.”