No CEO enjoys dealing with an outspoken activist shareholder, but in truth, many gadflies have positive impacts on the companies they target. Such is the case with Agrium Inc. and its persistent shareholder, hedge fund Jana Partners LLC.
There's no doubt pressure from Jana prompted the fertilizer and agricultural products retailer to return $1-billion in additional cash to shareholders last year and to improve its disclosure, to the benefit of investors. (Although Agrium says the cash returns had nothing to do with Jana's pressure tactics and that the investor's criticism is "deeply flawed.")
Agrium's share price is up more than 10 per cent this year so far and up by 66 per cent since the start of last year. But CEO Michael Wilson could use the opportunity of his meeting with analysts in New York next Monday to be more forthcoming with information any investor – including Jana – could use.
Agrium has been bulking up in the retail business over the past decade, including its pending $1.65-billion purchase of most of Viterra's agri-products business. Retail revenues amounted to $10.3-billion in 2011, almost twice as much as its fertilizer business, although the latter is more profitable, reaping $2-billion in operating earnings to retail's $769-million that year.
Has it been a wise use of the company's capital, and has the company's retail performance been up to snuff? Jana is doubtful, and in truth, it's difficult to know, given the lack of disclosure from the company until recently. Agrium did respond in its most recent quarterly earnings report, disclosing for the first time its return on operating capital and return on capital employed, as well as some working capital and operating performance measures.
It could share more. Analysts and investors should hold Mr. Wilson to his promise to publish same-store sales every second quarter (a standard measure for most retailers); and push for other disclosures such as return on invested capital. Agrium should also publish historical data dating back several years for the newly disclosed measures so the company's progress can be properly tracked.
Jana has raised some good points about the size and extent of Agrium's retail network, arguing it is too dense and expensive and could be scaled back. Agrium has acknowledged it could rationalize the network; analysts should ask when that plan will materialize and what it will mean for margins.
Jana is also pushing to elect five new directors. Agrium's current board is stacked with distinguished senior corporate leaders, but it lacks what Jana's slate has in spades: agriculture product distribution/retail experience. Agrium would undoubtedly benefit by making room for at least one or two of Jana's proposed directors, or any of its own nominees with similar experience. Such newcomers would provide experienced oversight to the faster-growing and larger part of Agrium's business and should be a welcome addition at the board table.
Agrium is a prosperous company whose share price hasn't suffered from the Jana assault, and it shouldn't have to bend to every one of Jana's demands – including the big ask: to split the company into two parts. But a little more sunshine wouldn't hurt.
Sean Silcoff