Shareholder, Agrium spar over value of retail arm

Wed Aug 15, 2012 6:06pm EDT
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By Rod Nickel and Euan Rocha

(Reuters) - Activist investor Jana Partners LLC, the biggest shareholder in Canadian fertilizer company Agrium Inc (AGU.TO: Quote), chastised the company in a private meeting on Wednesday over a recent change in how it compares its retail performance against other companies.

Jana, a New York-based hedge fund that owns a roughly 5 percent stake, believes that Agrium can create greater value for shareholders by separating its farm retailing network from its wholesale fertilizer production business.

Agrium has rejected the idea.

Agrium sent an email this week to sell-side analysts who follow the company in which it advised them to value the company's retail operations against a different set of companies than it previously used, effectively lowering the business's potential value as a stand-alone operation.

As a result, Agrium now recommends comparing the retail operations value to that of companies which trade on average at slightly less than eight times forward EBITDA; the previous set of comparable companies trade at more than nine times the expected earnings before interest, taxes, depreciation and amortization, according to Jana.

"There was a spirited discussion about the correct set of multiples used to value retail," a source at Jana said about Wednesday's meeting in New York between Agrium and the hedge fund. "We obviously disagree with their selection. It strikes us as slightly gimmicky that after years of using those comps, they're switching to comps that trade at a lower multiple."

The question of how to value the potential share trading price of Agrium's retail division is key to the debate about whether to spin it off as a separate company. There are no publicly traded farm retailers to offer an easy comparison.

Agrium spokesman Richard Downey said the company advised analysts on the change in comparables once news broke that Jana was agitating for change. The company changed its basis of comparison for its retail division after Jana raised the idea of spinning it off, resulting in a broader, more accurate set of comparables, he said.   Continued...