File photo of the Argium head office in Calgary.Jeff McIntosh/The Canadian Press
Agrium Inc.'s last chief executive officer loved to buy. The new CEO is open to selling assets – and one that could end up on the market is the fertilizer company's phosphate production operation.
In his first months on the job, Chuck Magro has made a point of saying his main priority is to "optimize" the businesses that his very acquisitive predecessor, Mike Wilson, made in his 10 years in the role.
Mr. Wilson, say deal makers who know him, liked to be in everything.
Calgary-based Agrium now owns facilities producing the three big crop nutrients – potash, nitrogen and phosphate – as well as a big retail network that can sell those products and more to farmers.
Mr. Magro is not so sure the company has to be everywhere. The retail business and the North American nitrogen business are as big as anybody's in their respective games.
The potash business is relatively small, but it has advantages such as as a low cost base. Phosphate is a tougher question, Mr. Magro said in an interview in Toronto.
"For me, it's a 'Where can we win?' question," Mr. Magro said. He likes the nitrogen business "a lot," and potash "has a lot of competitive advantages, and so I'm very comfortable with where we are with potash."
For phosphate, the future is less clear. The division, worth somewhere in the neighbourhood of $1-billion by one estimate, is simply not big enough to move the needle at Agrium.
"We have to decide as a company whether we grow that business or whether we do something else with it," he said. "I'm not married to the three nutrients whatsoever. My goal is very clear: to increase overall value. We're not going to stay in three nutrients because we feel we need to stay. We're only going to stay in three nutrients if it creates value."
One issue is the phosphate business requires mines to provide phosphate rock, and buying rock from others hurts margins. Agrium's Idaho phosphate plant has its own rock supplies. The company's Redwater, Alta., phosphate-processing plant relies on rock that Agrium purchases.
"We have to decide whether we invest fresh capital from a rock position or do we do something with that business, and we're doing that review right now," he said. The decisions will be made later this year, likely after the company's September strategy session.
Mr. Magro's message to shareholders since taking over on Jan. 1 has been that he wants to "get more juice from that lemon" by improving the company's overall operations. It's the kind of talk one usually gets from a new chief executive, who often require a break-in period on the job before large strategic moves are on the table.
But some of it simply reflects the state of the industry. After a long stretch of deals, the high-water mark of which was BHP Billiton's huge 2010 bid to buy Potash Corp., consolidation has taken a back seat to focusing on such things as share buybacks and dividends. Mr. Magro expects purchases to pick up, but he is not keen on huge, high-priced bets based on long-term commodity price forecasts, and he doubts his peers at other companies are either.
"We have all learned a lesson; it has to make strategic sense and economic business returns have to be there," and they have to be there in the short term, he said. "That period is gone now, where it's sort of a Hail Mary."
He's a fan of bolt-on acquisitions – smaller purchases. The returns are usually better than large strategic purchases of major rivals, and the risks are lower.
At the moment, he is most optimistic about brownfield expansions of facilities Agrium already owns. Building from scratch is too costly, something rivals such as BHP Billiton Ltd. are learning as they construct new potash mines.
Mr. Magro is looking at one greenfield project: building a new nitrogen plant in the U.S. corn belt. But he's wary of the $4-billion price tag and would like to find a partner to share the risk.
However, don't mistake that care for a marked change in the company's personality after Mr. Wilson. This is still Agrium, one of Canada's most aggressive companies.
"It was Mike, but it's also the DNA of the company," Mr. Magro said. "And it was a different time. It was the right time for it."