Analysis: Drought dampens Jana's case in Agrium fight

Wed Aug 22, 2012 1:12am EDT
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By Euan Rocha and Rod Nickel

(Reuters) - If Jana Partners fails in its bid to shake things up at Canada's Agrium Inc (AGU.TO: Quote), the New York hedge fund can always blame the weather.

The hedge fund bought into Agrium - the biggest U.S. farm products retailer and a major fertilizer producer - just before the worst U.S. drought in a half century sent grain prices surging. Jana, Agrium's largest shareholder and known for its aggressive actions as an activist investor, wants the company to boost shareholder value by spinning off its retail arm.

But the jump in grain prices has already sent shares of Agrium surging, making Jana's argument for a spin-off much less compelling. Investors have less reason to question Agrium's position that the retail unit is more valuable within the company than outside it.

The drought is expected to keep grain prices high into next spring's North American seeding period and beyond. That bodes well for sales of fertilizer, seed and chemicals to farmers eager to tap high grain prices.

So even if the dry weather dents Agrium's retail earnings in the short term, its wholesale business will do just fine.

The drought "leaves them in a great position," said a shareholder who asked not to be identified. "They make the stuff and they sell it directly to the farmers. They're in the sweet spot right now, and it could last for several years."

After listening to Jana's pitch last week for spinning off the retail operation, the shareholder is unconvinced the plan would produce a greater return.

Other investors also said they are not persuaded, and the trend in Jana's shares since the hedge fund on August 14 disclosed that it had become Agrium's biggest shareholder and was agitating for a breakup suggests that shareholders are lukewarm on the idea.   Continued...