But who is JANA, anyway? How does this situation compare with its previous investments?
A seat at the table
JANA is an event-driven, activist hedge fund. Its purpose is to determine whether a particular company may benefit from certain changes — say, spinning off a retail division, or converting certain operations into tax-advantaged master limited partnerships — and, if so, JANA takes a sizable position in the company and attempts to persuade management to make those changes. If it does, it reaps a profit.
Since Agrium’s management hasn’t been open to many of JANA’s ideas, its new goal is to get a slate of boardroom directors appointed that can push management in the right direction — ones that will be less of a rubber-stamp committee than the current board. Agrium has been aggressively campaigning against JANA, and while both sides have some valid points, Agrium has taken an absolutist stance and has essentially rejected all of JANA’s ideas.
By the time my article had been published, the drama had flared up again. JANA and Agrium had been engaged in talks over a compromise that would give JANA a single seat on the board of directors, on the condition that JANA give up its very public campaign for changes at the company, which would sort of defeat the point. Those talks have now fallen apart, with Agrium claiming that JANA reneged on the agreement at the last minute and demanded two board seats instead of one, while JANA claims that Agrium reneged on the agreement by refusing to even consider any of JANA’s proposals.
Agrium has instead announced the appointment of two different board members, one of which, a former executive at Deere & Company (NYSE:DE), has no real retail experience, while the other is the former CEO of Viterra, another conglomerated agribusiness retailer recently acquired by Glencore International Plc (LON:GLEN). It’s probably little coincidence that as soon as Glencore completed the acquisition in December, Agrium in turn acquired Viterra’s retail operations from Glencore. To the conspiracy theorist, handing a board seat to the former CEO of a company Agrium just acquired, in a transaction that earned him more than $30 million, lends some credence to JANA’s claim that Agrium “set forth a litmus test that such directors would not question management’s prior performance or strategy.”
Not to be taken lightly
This isn’t JANA’s first rodeo. The company has had great success with similar situations in recent years.
In late 2010, JANA began discussions with Marathon Oil Corporation (NYSE:MRO) to make certain changes at the company. JANA’s proposal was to split the integrated company in two, between its upstream and downstream operations; to return more cash to shareholders; and to restructure some of its operations to cut costs. Sound familiar?
Marathon ended up taking JANA’s advice, splitting into Marathon Oil and Marathon Petroleum Corp (NYSE:MPC), with both companies pledging to return cash to shareholders via $2 billion share repurchases. An investor who bought shares after JANA’s involvement would have nearly doubled his money by now.
This is almost completely due to Marathon Petroleum’s incredible performance. ConocoPhillips (NYSE:COP), another integrated player at the time, spun off its own downstream operations into Phillips 66 (NYSE:PSX) almost immediately after Marathon, and the two sets of companies have had nearly identical returns since. Phillips 66 has even set up a $2 billion share-repurchase plan, similar to the Marathons, and will soon form a tax-advantaged master limited partnership around some of its transportation assets, an idea JANA proposed to Marathon to cut costs.
JANA also proposed a breakup plan to The McGraw-Hill Companies, Inc. (NYSE:MHP). This company had already been considering some type of breakup when JANA came along, so JANA can’t really take all the credit here, but the company’s stock had performed remarkably well after JANA announced its proposal in August 2011. At least it did until recently, when the federal government announced that it was suing Standard & Poor’s, a division of McGraw-Hill, in a $5 billion fraud case.
The Foolish bottom line
In a bizarre move, Agrium recently moved its annual shareholder meeting up a full month. The move was announced a week ago Friday, after the market close, on a holiday weekend — typically something a company would do to bury news that it don’t want noticed. Moving the meeting gives JANA less time to make its case and shareholders less time to consider it. But I don’t think JANA needs that extra month. Its case is strong and is backed up by an excellent track record. How the vote goes at that meeting will have a huge impact on Agrium’s business, and its stock.
The article A Brief History of JANA Partners originally appeared on Fool.com and is written by Jacob Roche.
Fool contributor Jacob Roche and The Motley Fool have no position in any of the stocks mentioned.
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