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Michael Wilson, president and chief executive officer of Agrium


The discourse between Agrium Inc. and its activist pursuer Jana Partners grew heated on Monday morning as the fertilizer producer delivered shareholders a complete update on its dealings with the hedge fund. The 12-page report detailed communications with Jana and concluded the company's current strategy – keeping its retail division connected to the rest of the business – will provide greater value than severing it from the company.

Later in the day, Jana issued its own statement contesting some points in the filing. The hedge fund maintained that the performance of Agrium – particularly of its retail department – had been disappointing.

This is the latest in the series of accusations and defences out in the last few weeks as the two companies go head-to-head for the support of shareholders.

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Jana took issue with Agrium's assessment in the most recent filing that it "did not dispute" the evaluation of where the retail business would trade, or challenge a list of comparable companies (as completed by Agrium's banker Morgan Stanley) in a recent meeting. Jana said it sees the retail business as "dramatically undervalued" in relation to its peers. "We could not have been clearer on this point in our public and private communications with Agrium and to suggest otherwise is completely false," the statement read.

Jana also maintains that Agrium lags behind CF Industries (another "pure play" fertilizer company) as well as behind the other comparables in a composite (when taking a long-term view). Along with structural issues, Jana blames the company's underperforming stock on a poor performance of the retail business, climbing costs, and a board without sufficient retail-distribution knowledge.

Along with structural issues, Jana blames the lag in retail, climbing costs, and a board without sufficient retail-distribution knowledge.

In an earlier post, Streetwise's Boyd Erman questioned whether (given the current climate) any private equity purchaser would step up to participate in an Agrium buyout. Agrium's recent note said that Jana approached the company on May 31 to report possession of less than 5 per cent of the company's shares, and indicate that it might acquire more. The hedge fund also said that a private equity bid could support it in a leveraged buyout of the retail business.

Jana doesn't dismiss the possibility of a P/E bid, but it no longer seems to be as focused on the strategy. "While it is true that private equity interest would undoubtedly serve as a backstop or even provide a premium to a standalone retail's market value, we continue to fully believe the market would ascribe significantly greater value to retail independently than as part of Agrium," Jana said in a statement.

And although the fund did not expressly address the question of whether it would buy more shares in Agrium, at $3-billion in assets under management its hesitation is understandable. The shares that Jana already holds are worth roughly $700-million –that amount puts it close to a quarter of total AUM tied up in a fertilizer producer. While Jana could decide to purchase more stock, it would dramatically increase the risk of this investment.

While Agrium didn't like Jana's description of the company as a "conglomerate" in its filing, the fund continued to use that terminology in its reply, saying Agrium's "conglomerate structure" was partly to blame for its underperformance.

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