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Agrium's proxy battle may hinge on outlier adviser

Arpad Benedek/Arpad Benedek/iStockphoto

As the votes start to come in for who will sit in the boardroom at Agrium Inc. after a fractious and drawn out proxy battle, all signs point to the company beating back most of the challenge from shareholder Jana Partners. But there is a scenario in which Jana gets a foothold on the board.

In recent days, Agrium has gained the public support of some major shareholders, as well as proxy advisory firm Glass, Lewis & Co. All endorsed the incumbent board and questioned the Jana proposal to change how Agrium is run. That gives the company's current board a strong base of support.

The one outlier is Institutional Shareholder Services, a competitor to Glass, Lewis in the business of advising big investors how to vote at shareholder meetings. ISS recommended that investors vote for a modified version of the Jana slate, which includes seven incumbent directors and two of the five nominees that Jana put forward.

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ISS is a big outlier. By some estimates, ISS subscribers account for as much as 30 per cent of the shareholder base at Agrium. Of course, given the high profile nature of the fight at Agrium, some of those will do their own work and not just vote the way ISS recommends.

But the ISS recommendation, in addition to the backing that Jana has picked up along the way, does open the door to the possibility that the election could result in at least two Jana directors. ISS has recommended Jana founder Barry Rosenstein and David Bullock from the Jana slate.

Where it gets interesting is that some close to the fight had expected that if any Jana nominees would draw votes, it could just as well be two other executives on the Jana slate, Mitch Jacobsen and Stephen Clark. That creates two very different scenarios. Investors vote for the two ISS recommends as well as Mr. Jacobsen and Mr. Clark, and Jana may eke out another seat or two. Or, the Jana vote gets split between its various directors and Agrium's nominees sail through.

The lack of a universal ballot also makes things interesting. Investors have to vote either on Agrium's ballot or Jana's. And those who choose Jana's will not see the names of five Agrium nominees. Those who vote on Agrium's ballot won't see the Jana nominees.

The result is that someone who votes on Jana's ballot but doesn't vote for all Jana's nominees will vote for fewer than a full 12-director board, with no option to top up their list with people from the Agrium slate. That will likely limit the number of votes for five Agrium nominees who don't appear on both ballots.

It's a good argument for why universal ballots make a lot of sense, but that's for another day.

What shareholders now have to decide is whether they believe Glass, Lewis or ISS. (Whether they should believe either or do their own homework, is another, bigger question, and one that regulators are looking at). ISS based its recommendation on the notion that the dissidents "made a compelling case that change is necessary." The report reads strongly in favour of Jana, agreeing with many of the dissident's metrics on valuation and performance (which were the source of endless arguments between the company and Jana over recent months.) In fact, the report is so favourable to Jana that it is a bit surprising to get to the end and find that ISS has not fully endorsed Jana, giving only two out of five potential directors its recommendation.

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Glass, Lewis, on the other hand, says Agrium "has argued a more compelling case in favour of maintaining Agrium's existing strategy, and board, than Jana has argued against it." Glass, Lewis pointed to "less common" methodologies used by Jana to back its analysis, and says that the way it plans to compensate the directors it has put forward with pay tied to Jana's own performance may create a conflict of interest.

Glass, Lewis, however, does not buy all of Agrium's arguments, such as the board's claim that the faster pace of recent dividend increases is not related to pressure from Jana. Glass, Lewis said that was "disingenuous."

(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)

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