4. Conglomerate structure
In short, JANA wants Agrium to ditch its retail division. The most compelling reason is that Agrium’s conglomerate structure makes the company as a whole difficult to analyze. None of Agrium’s chief competitors have retail divisions, so the analysts covering Agrium and its competitors are well versed in analyzing big fertilizer companies, but not so much with farm supply retailers. As a result, the misunderstood retail division ends up misvalued, dragging down the company’s overall valuation. JANA argues that if the retail division were spun off, shareholders of both businesses would benefit.
5. Corporate governance
This is where JANA’s board member nominations come in. Three of JANA’s nominees have at least 20 years of experience managing some of Agrium’s direct retail competitors. Agrium, meanwhile, currently has no board members with significant retail experience, and CEO Michael Wilson even stated recently that retail experience is not a prerequisite to be on the board. Given that retail is a large part of Agrium’s business, it seems that management would make it a priority to have board members with retail experience, rather than focusing solely on wholesale.
The Foolish bottom line
One argument Agrium has made is that the outperformance of the company’s stock versus an average of CF, Mosaic, PotashCorp, and Yara has proved the success of its strategy.
JANA takes issue with this comparison for two reasons. First, it compares Agrium only with its wholesale competitors and ignores its retail and advanced technologies divisions. Second, Yara and CF are both pure-play nitrogen producers, but Yara is based in Europe and has consequently benefited far less from the North American natural gas boom than Agrium or CF. CF’s stock has doubled in the past five years, while Yara is just about flat. Averaging the two makes Agrium’s performance look a lot better by comparison.
JANA’s comparison is far more accurate, using just CF as a comparison for Agrium’s nitrogen operations, and an average of Mosaic and PotashCorp for its potash and phosphate operations; it also includes a weighted basket of retail and advanced technologies competitors. Agrium shows heavy underperformance under this new comparison, putting more burden on the company to prove its case.
The article This Company’s Boardroom Drama Is Heating Up originally appeared on Fool.com and is written by Jacob Roche.
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