CALGARY, ALBERTA -- (Marketwire) -- 03/20/13 -- ALL AMOUNTS ARE STATED IN U.S.$
Agrium Inc. (TSX: AGU) (NYSE: AGU) today exposed numerous flaws in JANA's deceptive share price performance claims and other analyses. In a presentation posted today to www.agrium.com/proxy, copies of which were provided earlier this week to the proxy governance advisory firms, Agrium demonstrates that JANA has not met the burden of proving that Board change at Agrium is warranted, or that JANA's dissident nominees would be likely to effect positive change.
Agrium Board Chair Victor J. Zaleschuk issued the following comment:
"JANA's latest presentation only confirms that Agrium and JANA are offering shareholders polar opposite visions for the future. Agrium's Board is offering the continued execution of the integrated strategy that has delivered a 467% shareholder return since it was initiated in late 2005. JANA offers dissident nominees who believe Agrium should abandon its current strategy, break itself into three small pieces and take a host of other actions that Agrium's Board has concluded would destroy shareholder value.
"Last week JANA issued a press release proclaiming that its ideas would unlock 'massive' value for Agrium shareholders. Today, despite publishing a 105-page presentation, JANA provided no analysis to support that claim. Instead, they devoted 27 slides to trying to convince the proxy advisory firms to buy into a self-concocted performance benchmark that has been rejected by all 29 equity research analysts who follow Agrium.
"We fully expect the proxy advisory firms will see what the equity research community and so many of our largest shareholders have seen, which is that JANA's analysis is deceptive, its ideas would destroy shareholder value, and its dissident nominees, with their pay arrangements, are inextricably tied to JANA's agenda and a short-term focus of less than 30 months.
"In this regard, we are pleased that two of our largest shareholders, Letko, Brosseau and Associates(1) and bcIMC(2), have both announced their intention to vote the WHITE proxy in support of Agrium's director nominees. We thank them for their careful consideration and the independent opinions they have provided for the benefit of their fellow shareholders."
The facts here are simple: Agrium is a clear leader in the global agricultural inputs sector. Agrium is one of the best performing stocks in North America over the past eight years, and on any accepted basis its 1-, 3-, and 5-year share price performance is very strong. Agrium's Board has an excellent governance track record, including a robust and ongoing board renewal program that has added the fresh perspectives of seven of the current 13 highly-qualified Board members since Agrium initiated its integrated strategy in 2005.
(1) Letko Brosseau's release: http://cnw.ca/DErGd
(2) bcIMC's statement: http://www.bcimc.com/newsroom/pdf/Agrium%20Statement.pdf
Among other things, Agrium's presentation exposes JANA's claims about Agrium's share price performance as JANA's most deceptive analysis of its entire campaign.
-- Analysts Have Rejected JANA's Concocted Methodology. If JANA's approach were valid, others would have adopted it. In fact, despite presenting this concept for 9 months on the campaign trail, zero of the 29 equity research analysts that follow Agrium use JANA's "portfolio weighted composite" when setting share price targets or measuring performance. (For more detail, please see slide 65 of Agrium's Proxy Governance presentation at www.agrium.com/proxy.)-- Weightings: For any market-based composite (e.g. S&P, TSX), portfolio constituent parts are determined by the market value they contribute, not profit contribution. To support its argument, JANA has cooked up portfolio weightings that assume all segments are valued at the same multiple, which is flat wrong. (For more detail, please see slides 66 and 67 of Agrium's Proxy Governance presentation at www.agrium.com/proxy.)-- Over 20% of JANA's composite is uncorrelated to agriculture: JANA suggests that over 20% of the value of Agrium shares should be precisely correlated with JANA's 5-member, non-ag distribution composite. This approach is unsupported by the facts. When UAP was public, UAP had virtually no correlation with JANA's 5-member, non-ag distribution composite, or any other composite of distribution companies. (For more detail, please see slides 68 and 69 of Agrium's Proxy Governance presentation at www.agrium.com/proxy.)-- Significant overweighting of a single peer: As above, in order to make its numbers work, JANA's composite also assumes approximately 50% of Agrium's value is based on movements in a single peer, CF Industries. Furthermore, JANA implicitly includes the impact from deleveraging the CF balance sheet after it levered up at the bottom of the cycle to acquire Terra in 2010. By doing this, JANA has significantly overstated the performance of an unleveraged nitrogen asset. (For more detail, please see slides 64 and 66 of Agrium's Proxy Governance presentation at www.agrium.com/proxy.)-- Cherry-picked time frame: JANA deliberately selected June 1, 2012 as the end date for its analysis, and has presented data in its proxy circular that is almost nine months old. In this regard, stating its intention to vote the WHITE proxy FOR Agrium's slate of directors, Letko, Brosseau & Associates, who exercise voting power over 2.3 million Agrium shares or 1.5% of the outstanding shares, noted that: "We find JANA's choice of periods to measure share price performance misleading as it ignores the improved stock markets since June 2012." JANA's analysis ignores the fact that during the past 12 months Agrium has reported record earnings and cash flow, increased its dividend, and completed a C$900 million share repurchase. JANA also attacks Agrium for benchmarking its own performance to late 2005. JANA neglects to mention that its entire campaign is based on forcing Agrium to abandon the company's highly successful integrated strategy, which began in late 2005. JANA made this the relevant performance period, not Agrium.-- Misleading break-up valuation analysis. Because there is no support among analysts or shareholders for its break-up plan, JANA has chosen to mischaracterize the meaning of normal course sell-side analyst 12 month share price targets by suggesting these are "break up valuations." The reality is that since the beginning of 2013, the median share price target for Agrium shares has averaged an implied upside consistent with the company's fertilizer peers of approximately 10%. While JANA has attempted to twist the meaning of an analyst share price target, it is worth noting that in the published reports of the analysts highlighted by JANA, the analysts(3) do not support a break up. For example: "There is no evidence to suggest that a split up of the company would yield a substantial re-rating of Retail, and would not result in a de- rating of Wholesale." -- Scotiabank, March 8, 2013.-- Flawed analysis and contrived metrics: JANA also talks about EBIT as a percentage of Gross Profit and refers to it as Retail margin. JANA Partners introduced this measure in its January 23, 2013 presentation and continued to use it in their Proxy Circular even after Agrium's January 28, 2013 Analyst Day where we illustrated that Agrium Retail's EBITDA margins were highly superior to those of our competitors. EBIT to Gross Profit is not a measure of margin. Agrium Retail has very strong margins as evidenced by our high EBITDA margins. Agrium Retail margins have always significantly exceeded margins of our closest direct agricultural retail peers (Royster-Clark and UAP). Agrium has consolidated Royster-Clark, UAP and many tuck-in acquisitions (all with EBITDA margins averaging well below 6%) since 2006 and has successfully increased its total North American EBITDA margins to over 9%. (For more detail, please see slide 48 of Agrium's Proxy Governance presentation at www.agrium.com/proxy.)-- JANA Remains Committed to the "Golden Leash" Payment Scheme Despite Strong Negative Reactions by Shareholders, Governance Experts and Others. JANA's dissident director pay scheme demonstrates that JANA's nominees are not aligned with other shareholders and that JANA has a short-term vision for Agrium of less than 30 months. (For more detail, please see slides 50-52 of Agrium's Proxy Governance presentation at www.agrium.com/proxy.)-- JANA's Campaign Has Zero Credibility. By taking a leadership role with the formulation of JANA's misguided and flawed analysis, participating with JANA on investor roadshows, and accepting special compensation directly from JANA, JANA's dissident nominees are tied to JANA's flawed and ever-changing arguments, have zero credibility, and lack the ability to think and act independently of JANA's ideas.