The hedge fund pushing Agrium Inc. for a breakup is accusing the Canadian farm-supply company of a "scorched-earth" defence, cranking up the rhetoric in a battle that is quickly becoming acrimonious.
Jana Partners LP, a New York-based firm that is Agrium's largest shareholder, sent a letter to the company's board decrying the company's tactics in vivid terms.
The hedge fund accused Agrium of understating the value of its biggest division in an attempt to avoid a debate about Jana's proposal to break up the Calgary-based fertilizer company.
"We have watched in disbelief over the last few days as the management of Agrium Inc. has taken a scorched earth approach to avoid any reasonable discussion of our proposals to unlock the true shareholder value potential of the company," Jana founder Barry Rosenstein wrote in the letter, which was sent Wednesday afternoon.
Jana accumulated about 4 per cent of Agrium's shares and had been pushing Agrium behind the scenes to split its retail operations, which sell supplies to farmers, from its fertilizer manufacturing operations. The debate spilled into the open this week, after a report about Jana's plan, and Agrium rebuffed Jana publicly.
Agrium chief executive officer Mike Wilson met with Jana in New York on Wednesday. Agrium said the meeting was arranged several weeks ago, and the company used the session to stand firm in its position that a breakup would be wrong for the company.
"The only accurate statements in Jana's letter are that Agrium is not going to spin off its retail business, and that Agrium is always looking at way to improve operating performance," a spokesman for Agrium said.
A spokesman for Jana declined to comment.
According to Jana's letter, there was no progress at the meeting on one of Jana's key contentions – that Agrium's retail division is worth more on its own than as part of Agrium. Jana accuses Agrium of suddenly switching to a new set of comparable companies for the retail division that lowball its value, from a set that Agrium had previously used that supports Jana's argument.
"It is the board's responsibility to oversee management to ensure that it is focused on creating shareholder value, not intentionally destroying it through late-night switches to talk down the value of Agrium's stock in order to preserve a conglomerate structure that destroys shareholder value or wasting shareholder capital on expensive and pointless defense tactics," Mr. Rosenstein wrote.
Under the valuation yardsticks previously used by Mr. Wilson in a presentation last year, the retail division would be worth $10-billion. The new peer group values the retail arm at $8-billion, Bloomberg News estimated.
Agrium acknowledges the switch, saying in a statement the old peer group reflected companies with "higher multiples as aspirational goals of value," however, "that has little to do with how retail would trade in today's market as a separate public company."
Agrium said the new peer group was suggested by its bankers at Morgan Stanley, and that the Jana idea results in "virtually no upside for our shareholders," and creates "risks and uncertainties."
There are no companies that are directly comparable to Agrium's retail operations, "so any potential valuation discussions are very blurry," BMO Nesbitt Burns analyst Joel Jackson wrote in a report. "Agrium is walking a fine line arguing that retail is undervalued, but not so much to promote the view that breaking up the integrated company makes sense," he wrote, adding, "Jana's view that Agrium has demonstrated inconsistent messaging regarding what retail is worth has some merit."
Still, the analyst said he believes that Jana "will be challenged to convince a broader shareholder base to support a split-off, and would need to table more compelling arguments than what has been disclosed so far."