One terse phone call Monday afternoon spelled the end of a chance to conclude the corrosive proxy battle between fertilizer maker Agrium Inc. and its biggest shareholder, U.S. hedge fund Jana Partners.
A truce could have terminated the investor's bid to take a seat at the boardroom table of Calgary-based Agrium and push for a split of the company it believes is underperforming.
Instead, shareholders at a May meeting will be presented with two competing board slates and two competing visions for the company. Agrium is pushing for the status quo, an integrated producer of fertilizer and retailer of farm products. Jana says management can be improved, and the company might be better off dividing into two companies, one a producer and one a retailer.
Starting last Friday, with an e-mail to Jana from a representative of Agrium, the sides opened up a quiet diplomatic effort to try to end the time-consuming and expensive dispute, which has been heating up since last summer. On the table was the possibility of Jana nominating a director to Agrium's board.
But by Monday night, after a call between Jana founder Barry Rosenstein and Agrium CEO Michael Wilson, the truce was over. Agrium went ahead with the nomination of two new directors that Jana refused to endorse, including former Viterra Inc. CEO Mayo Schmidt. There was no director for Jana. What's more, the sides were publicly sniping at each other once again, with Agrium accusing Jana of reneging on a deal and Jana saying they were "false allegations."
The back and forth of the talks in the 72 hours from Agrium's first missive to the final confrontation, in the form of dozens of calls and e-mails that were described in detail by three people familiar with the negotiations, provides a window into the psychology of the dispute and how each side views its negotiating position.
Believing it was in a position of strength, and betting that Jana would be willing to give in to avoid a vote, Agrium's opening offer was a hard bargain.
From Agrium's point of view, "this was not a settlement negotiation," said one of the people. It was a take-it-or-leave-it offer that would enable Jana to save some face before a vote that Agrium was confident it would win.
The company wanted Jana to essentially drop all its criticisms of Agrium, and agree to stop agitating for a full year, in return for a single seat on the board. That would be a big step down from the five seats that Jana had been seeking.
Agrium also told Jana it was planning to nominate two new people to the board who would help address Jana's criticism that Agrium's directors lacked experience in retailing and distribution. One was Mr. Schmidt. The other was a former John Deere executive named David Everitt.
There was one catch. Agrium wasn't telling Jana who the directors the company wanted to nominate were.
Still, Jana was interested enough to keep talking. Throughout the weekend, the sides went back and forth, with lawyers doing much of the work.
The sides discussed who Jana's director could be. Jana also pushed Agrium to include some sort of wording, even if it was watered down, in any joint announcement that at least signalled the company was listening to Jana's suggestions. Agrium would not relent on that point.
On Sunday afternoon, Agrium CEO Mr. Wilson called Jana founder Mr. Rosenstein. They discussed the idea of two directors from Agrium and one from Jana. But Mr. Rosenstein still didn't know who Agrium's new directors would be.
It was not until hours later, on Sunday evening, that Agrium revealed that it was Mr. Schmidt and Mr. Everitt that it planned to nominate.
Agrium was anxious to take the settlement plan to the company's board Sunday night, and it wanted Jana to agree that the deal was done. Jana would accept one nominee, and a press release would go out Monday saying the proxy war was over.
At this point, whether or not Jana "reneged," as Agrium claims, depends on whether one believes there was a full agreement.
Agrium believed there was, and its team even got to work on a draft press release and a written agreement. Jana's position was that there was no deal until it agreed to the directors, and to the final wording for the announcement.
A call was scheduled for Monday between Mr. Rosenstein and Mr. Wilson to iron out any loose ends.
In the meantime, Jana got to work researching Mr. Schmidt and Mr. Everitt. By Monday, after working much of the night, Jana had come to the conclusion that they were not as good as the candidates that Jana wanted to nominate. Furthermore, the wording in the announcement gave no nod to Jana's demands.
That, said a person familiar with Mr. Rosenstein's thinking, left Mr. Rosenstein unwilling to go ahead with the deal.
When he got on the phone Monday with Mr. Wilson, Mr. Rosenstein demanded more directors to compensate for what he saw as weaknesses in the Agrium candidates and Agrium's unwillingness to commit to change.
The Agrium side views it differently, chalking up Mr. Rosenstein's decision to demand more concessions at the last minute as driven by the perception that Jana would be giving up too much, which would damage the firm's reputation.
In any case, the call, which took place just after 3 p.m. Monday, went nowhere. Agrium would not bend on more directors for Jana.
"Mr. Wilson was curt and said thanks, and that's not happening," said one person familiar with the situation.
Now, the talks must shift back to the public realm, with both sides campaigning hard in the lead-up to the May meeting. Jana and Agrium had an opportunity to decide their own fates, but they were unable to come to a compromise. Now, shareholders will decide and it will be all or nothing.