However, Potash’s unfavorable debt ratio would make this transaction difficult to finance without substantial leverage. Despite the obvious synergies that would arise from such a deal, Jana appears to be betting that Potash will not become involved in this situation. Despite its size, the company simply has not expressed interest in large-scale acquisitions since the end of the financial crisis.
For now, the deal hinges on the whims of Agrium’s board and shareholders. Thus far, the company’s board has presented a united front in opposition to the retail spin-off. It remains to be seen whether shareholder pressure can force it to reconsider this position. However, Agrium’s stock price has already increased by more than 50 percent since June of 2012. If this trend continues, Jana’s promises of a large-scale share revaluation will begin to ring hollow.
Long-Term Prospects and Likely Outcomes
Jana is not new to the spin-off space. In recent years, the hedge fund has successfully pressured other firms to spin off under-performing divisions in order to unlock value in seemingly stable or profitable segments. For instance, it encouraged Marathon Petroleum Company (MPC) to spin off its pipeline division and buy back stock. It was also a major force behind McGraw-Hill’s (MHP) recent divorce from its educational-materials holdings. As such, it would appear unwise to bet against Jana’s spin-off expertise.
At the same time, Agrium’s board appears dead set against any potential deal. Given the recent run-up in Agrium’s stock price, it is unclear whether the company has more room to run in the absence of a deal. Investors who wish to bet against the likelihood of a spin-off should consider opening short positions in the fertilizer giant. Meanwhile, investors who believe that the spin-off will ultimately go through may still find Agrium attractive at these levels. The next few months will be crucial in determining the stock’s medium-term price action.
The article Who Benefits From This Hostile Bid? originally appeared on Fool.com and is written by Mike Thiessen.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.