Agrium proxy fight a wasted effort

Lest anyone might have thought the battle between Agrium and New York hedge fund Jana Partners was not going to descend into a time-consuming proxy fight, think again.

The board of directors of the Calgary-based fertilizer company held a conference call late Monday afternoon to dissect the latest developments.

After three days of negotiations over the weekend in which Agrium apparently agreed to name one of Jana’s director nominees to the board in return for Jana standing down, the hedge fund backed away at the last minute, insisting it wanted two of its nominees named to the Agrium board, not one.

What transpired instead was that Agrium announced it had nominated Mayo Schmidt, the uber cyclist and former head of Viterra, and Dave Everitt, who recently finished a 30-year career with Deere & Company.

With these additions, one could easily make the argument the expertise Jana said was lacking at the board table has been added — in spades. It should be noted the individuals Jana had put forward as potential candidates did have the retail experience it said Agrium needed but, with one possible exception, not in the agriculture sector.

Schmidt ran Viterra until it was sold to Glencore and part of that transaction involved the sale of 90 per cent of Viterra’s retail operations to Agrium. While some might say Viterra missed an opportunity to become a global player, what can’t be disputed is Schmidt’s pivotal role in transforming the former Saskatchewan Wheat Pool into a global agriculture player valued at $6.1 billion by the time it was sold to Glencore last year.

The nomination of Everitt, who was running the agricultural division covering North America, Australia and Asia for Deere, immediately brings a valuable international perspective to the board table.

One would think all this would suffice to squelch the Jana narrative that Agrium’s board lacks crucial retail expertise. But Jana still isn’t happy. Apparently, it believes the search that was conducted wasn’t comprehensive enough and that the new directors are not independent enough.

That’s presumably because its nominees — who have been touting the Jana agenda through meetings with representatives on both the buy and sell sides — were not included in the search.

But there are likely a few reasons for that.

The nominating and board governance committees of company boards are charged with staying on top of the skill set required at the boardroom table to support the company’s strategic plan.

Searches to add directors are approached on that basis.

That search process was underway before Jana had shown up and started shaking the Agrium tree.

Even if Agrium were to consider any one of the Jana nominees, the committee would be wary about the impact this could have on boardroom dynamics, not to mention the true intentions of the nominee. The fact it was prepared to take one of Jana’s candidates meant the committee would have weighed all the issues very carefully before concluding the Jana nominee would be a good fit.

The fact Agrium nominated two qualified individuals to its board — who do fill the identified gaps — should be enough to see the box has been checked off, and the time has come to walk away with pride intact.

But that is not the road Jana is taking.

Whether or not it’s because the hedge fund was unhappy it didn’t know who the Agrium board was going to nominate doesn’t really matter. It could easily be argued that the committee was under no obligation to do so.

But by not walking away, Jana has effectively painted itself into a corner from which it will be difficult to extricate.

As it says in the Old Testament: “Pride goes before destruction, a haughty spirit before a fall.”

Clearly, in Jana’s case, both pride and spirit are still firmly in place.

Instead, Jana appears determined to forge ahead with a proxy battle that will take place at Agrium’s annual meeting in May. But to what end? Jana has already made a healthy return on its six per cent stake in Agrium. The company’s shares closed at $112.38 on Wednesday and a number of sell-side analysts have recently boosted their 12-month target prices to between $115 and $130 per share.

If Jana were truly investing for the long term, it would stay with its position and realize another eight to 10 per cent return for its investors.

Instead, Agrium management is going to be distracted by a proxy fight in which Jana hopes to have its nominees voted onto the board.

Ever since Jana started this bun fight, there have been comparisons made between Agrium and Canadian Pacific Railway Ltd. While both storylines involve an activist shareholder and a Canadian company, that’s where the similarities end.

Agrium has boosted shareholder value, despite Jana’s derision of its board, and, unlike CP, it has shareholders and sell side analysts are on its side. Whether Jana wants to realize it or not, the momentum is in Agrium’s favour; taking this to a proxy fight is nothing more than a waste of time and money.

Jana is not offering Agrium shareholders — neither retail nor institutional — anything beyond a promise their director nominees bring more to the table than those who already there, making it even more than doubtful they would be successful. There appears to be a bit of hubris at play in this situation, which rarely ends well.

Jana — and its investors — would be well advised to think about that in the context of its next moves.