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A storage tank stands at Agrium Inc.'s Carseland Nitrogen Operations facility outside Calgary, Alberta, Canada, on Monday, Aug. 23, 2010. 

Bloomberg

If Jana Partners is indeed banking on private equity speculation to buoy the value of an independent Agrium Inc. retail farm supply division, the activist investor better hope for a pick up in the leveraged buyout market because no private equity firm has bought a company that big in a long time.

Agrium laid out its case against a breakup to investors in a filing Monday, fighting back against activist investor Jana Partners, and two tidbits jump out.

First, Agrium says that Jana told the company back at the end of May that it had almost 5 per cent of the company's shares; that it wanted Agrium to split its farm supply store from its fertilizer production plants and that Jana "intended to acquire more shares." So far, it doesn't appear Jana has done so.

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Secondly, in a meeting last week between Agrium and Jana, Agrium says Jana said that retail's valuation "would be supported by the possibility of a bid from a private equity firm to acquire retail in a leveraged buyout."

That's an interesting case to make in what is currently a very quiet market for private equity mega deals.

The value of retail in the open market is the crux of the dispute between Agrium and Jana. Jana believes that retail would trade at a strong enough valuation to warrant setting the division free in a spinoff. Agrium is arguing that the division is worth more inside Agrium, as part of an integrated company that not only produces fertilizer for farmers but sells it directly to them. The division's valuation would be somewhere between $8-billion and $10-billion, depending on what peer companies are used.

It would be a healthy leveraged buyout to pick up the retail business, especially in a private equity market that hasn't been overly active. The biggest private equity buyout this year is $7.2-billion, according to tracking firm Preqin, and second-place was a $6.6-billion deal.

After that, the list falls off fast into the $3-billion range.

A spokesman for Jana didn't immediately respond to a request for comment.

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