August 15, 2012
Board of Directors (the “Board”)
13131 Lake Fraser Drive SE
Calgary, Alberta T2J 7E8
Attention: Victor J. Zaleschuk, Board Chair
VIA FACSIMILE AND OVERNIGHT DELIVERY
Ladies & Gentlemen,
We have watched in disbelief over the last few days as the management of Agrium Inc. (“Agrium” or the “company”) has taken a scorched earth approach to avoid any reasonable discussion of our proposals to unlock the true shareholder value potential of the company through improvements to its corporate structure and operating performance including cost and working capital management. This pattern of behavior continued in our meeting with management and their advisors at our office today.
· The Switch. We have attached an e-mail sent by management late Monday night in response to the news of our discussions claiming that the comparable company set that management has used for years to measure the performance and valuation of Agrium’s retail business (and which trade on average at over 9x EBITDA) is suddenly no longer applicable, and attempting to switch to a new set of comps that just so happen to trade at significantly lower multiples (closer on average to 7x EBITDA) in order to argue against the dismantling of Agrium’s value-destroying conglomerate structure. We also note that Agrium management just last year at Agrium’s investor day publicly argued for an equally high multiple (11x), yet now argues against his own company’s valuation in order to fend off a substantive debate about the real value of Retail and how to unlock it. This is unprecedented in our experience and leaves only two choices: Agrium management is either now intentionally and disingenuously talking down the valuation of the company’s assets in order to avoid a rational discussion about the value of a separation, or has knowingly engaged in over $4 billion in Retail acquisitions since 2008 for which it has paid far too much. Either equates to the intentional destruction of shareholder value, destroys credibility, and would be a complete violation by the Board and management of their duties to shareholders, and we believe is grounds for investigation into management’s past and present comments regarding its comparable company set (one has to be wrong) to regulators.
· Fighting Shareholders with their Own Money. We also note that the Company appears intent on squandering shareholder capital in a tactical effort to avoid a debate on the merits. This includes calling other proxy solicitors (even though the company already has one) in an apparent attempt to prevent us from engaging with them (an effort which by the way came too late), engaging two PR firms and hiring an expensive “takeover” defense banker. None of this creates a dime of shareholder value - it destroys it - all in the name of denying shareholders the benefit of a real debate regarding value-unlocking change.
· Ignoring the Issues. While Agrium management has been aggressively (and as stated above, we believe inaccurately) arguing against the merits of a spin, they have offered zero legitimate evidence of the tangible benefits of the company’s conglomerate structure. They have also failed to legitimately address the cost and operating performance issues we have raised, including the failure to manage costs and working capital in the Retail business, which if fixed could generate billions in additional shareholder value independent of a separation of Retail from Agrium.
It is the board’s responsibility to oversee management to ensure that it is focused on creating shareholder value, not intentionally destroying it through late night switches to talk down the value of Agrium’s stock in order to preserve a conglomerate structure that destroys shareholder value or wasting shareholder capital on expensive and pointless defense tactics. We also remind you that this is the beginning of the debate regarding shareholder value creation at Agrium (which has dramatically underperformed its pure play fertilizer peer CF Industries and a composite of its true pure play retail comparable company set over a multi-year period, regardless of the short-term performance of the company’s stock this year), not the end of it, and ultimately shareholders, not management, will have the final say.
We do note that we appreciated management’s offer in our meeting today to discuss further ways to potentially improve operating performance. We hope this will lead to a more productive approach to our discussions than has been demonstrated to date.
JANA Partners LLC
Agrium Comments on Meeting with JANA Partners
August 15, 2012– ALL AMOUNTS ARE STATED IN U.S.$ UNLESS OTHERWISE INDICATED
Calgary, Alberta – In response to reports about a meeting today between Agrium Inc. (TSX and NYSE: AGU) and one of its shareholders, JANA Partners LLC, Agrium confirmed that such a meeting took place. Agrium, which meets regularly with shareholders, said the meeting with JANA was arranged several weeks ago.
At the meeting, Agrium made clear to JANA that the Board carefully considered JANA’s position that Agrium should spin off its Retail operations. The Board unanimously determined that a spin-off would not be in the best interests of the company or its shareholders.
Agrium is confident that it has an effective long-term strategy to create sustainable value for shareholders. Agrium believes the performance and value of its Retail operations will continue to be maximized within the existing structure.
Morgan Stanley & Co. LLC is acting as financial advisor to Agrium.Report Typo/Error