Hedge fund unhappy | Former Viterra president wasn’t on largest shareholder’s wish list
The former head of Viterra has a new position of power on the board of a fertilizer company that could soon be in control of a sizeable chunk of Viterra’s old assets.
Agrium Inc. has appointed Mayo Schmidt, former president of Canada’s largest grain company, to its board of directors.
The Canadian fertilizer giant has also appointed David Everitt, president of Deere & Company’s global tractor and crop care products, to the board.
“Agrium is pleased to welcome two strong, uniquely qualified, independent directors with extensive agricultural, retail and distribution experience to its board,” said board chair Victor Zaleschuk.
Agrium is in the process of acquiring Viterra’s 263 agricultural retail outlets in Canada and Australia. The deal is subject to competition bureau approval in both countries, which is expected before the end of the second quarter of 2013.
Jana Partners LLC, Agrium’s largest shareholder with a six percent ownership stake in the company, is displeased with the appointments.
It has been highly critical of Agrium’s management and its board of directors. Jana wants the fertilizer company to spin off the retail side of its business and focus on manufacturing.
In November, the New York hedge fund put forward a slate of five candidates it handpicked for Agrium’s board, including former Canadian agriculture minister Lyle Vanclief.
Agrium spokesperson Richard Downey said it will be up to shareholders to either reaffirm Agrium’s selections or choose Jana’s candidates at the company’s annual general meeting, which usually takes place in early May.
“Shareholders will vote for one or the other. We’ve never had a proxy contest at Agrium before,” he said.
Agrium reached out to Jana before making the board appointments to see if the two parties could find a negotiated solution, but discussions broke down after three days and the company proceeded with its selections of Schmidt and Everitt.
Jana issued a terse news release stating that Agrium’s litmus test for its directors was that it wouldn’t question management’s prior performance or ongoing strategy.
“In other words, (they) would agree to abdicate a director’s primary function,” said Jana in a statement.
Jana said Agrium appears to be finally acknowledging that there needs to be change at the board table without embracing actual change in the form of independent voices who will push for shareholder-friendly improvements
“We are highly confident that shareholders will see through Agrium’s latest hollow attempt to fight off real value-maximizing change,” said the hedge fund.
Schmidt did not respond to an interview request for this article.
Agrium said in a news release it had proposed allowing Jana to name one of its director candidates to the board in addition to Agrium’s selections. In return, Jana would drop its pursuit of the break-up of the company along with its other activist interests.
Agrium claims Jana initially agreed to the terms but then reneged at the last minute, insisting on appointing two of its director nominees, which prompted the fertilizer company to terminate discussions.
“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,” said Agrium chief executive officer Michael Wilson.
Jana said Agrium’s allegations surrounding the negotiations are false. Jana claims it broke off negotiations when Agrium refused to address the performance issues it had identified and revealed names of directors Jana felt were unacceptable.
Jana has a history of getting what it wants. It has won similar campaigns at Marathon Petroleum Corp. and McGraw-Hill Companies.
Agrium is confident shareholders are on its side, but the company has already made concessions that Jana was asking for and recently held a 4.5 hour meeting with investment analysts in New York, where Wilson discussed a 106 page document refuting Jana’s criticisms of the company.
How the proxy battle unfolds could determine the kind of company western Canadian farmers deal with in the future when they buy their crop inputs because Jana wants to spin off the retail assets, including the newly acquired Viterra assets.
Agrium expects to pay $575 million for Viterra’s 263 retail outlets, 232 of which are in Canada. That is a multiple of 5.75 times the estimated 2011 earnings before income, taxes, depreciation and amortization for Viterra’s agribusiness operations.
The net purchase price reflects the pending sale of Agrium’s 34 percent interest in Canadian Fertilizers Ltd., Canada’s largest nitrogen fertilizer plant, which it also received in the Viterra transaction.
Agrium has agreed to sell its share in the Medicine Hat, Alta., facility to CF Industries, which already owns the remaining 66 percent of the plant, for $915 million. That deal is also pending regulatory approval.