For the second time in a little over two years, Agrium has faced an activist investor.JEFF MCINTOSH/The Canadian Press
ValueAct Capital, the San Francisco-based activist investment fund that just took an $850-million stake in Canada's Agrium Inc., has a reputation for quietly getting things done.
It's the second time in a little over two years that Agrium has faced an activist.
The last activist to show up in Agrium's stock was Jana Partners in early 2012, which ran a noisy, combative and ultimately losing campaign to split the company up. Jana wanted the company to divide its fertilizer production business from its farm-products retailing business. Agrium fought back aggressively and fended off the challenge.
ValueAct, if it plans to agitate for change, is starting off very differently. ValueAct's disclosure of its stake gave no details, saying simply that the $14-billion fund bought the stake "for investment purposes." Agrium said it has been talking to ValueAct for months. ValueAct has not asked for a split of the company.
"All I can tell you is discussions with ValueAct have been constructive, cordial and very similar to any other shareholder meeting. They have indicated they are a long-term shareholder." said Richard Downey, a spokesperson for Agrium.
However, the fact that ValueAct filed a 13D is a clue. That SEC filing is required when a firm buys more than 5 per cent of a company and plans to engage management and directors. And the spike in Agrium shares Friday signals that many in the market expect ValueAct to push for change of some sort. Agrium shares rose 7.6 per cent, and their intraday rise was the sharpest in five years.
While Agrium shareholders declined to back Jana, a breakup scenario might look better today in light of the fact that other comparable stocks in fertilizer and retailing have outpaced Agrium. Jana was facing a shareholder base that was largely happy with Agrium, after the company's stock had been on a good run. Shares of Calgary-based Agrium hit a 52-week low last week.
"The stock has done squat lately," said Chris Damas, analyst and editor of the BCMI Report, who recently predicted an activist might try again at Agrium. "The board will not have that cushion. Shareholders will be a bit more antsy." He believes that the company's fertilizer production assets are struggling and obscuring the value of the retail business.
ValueAct is known for working quietly behind the scenes for change, with a much less confrontational style than other activists. There are rarely public fights.
Still, things happen when ValueAct shows up. Founder Jeffrey Ubben told CNBC two years ago that his firm gained a board seat in about 30 of the 60 companies that it had made "core investments" in over the years. Those board seats sometimes come with agreements not to launch an all-out proxy fight. Once in the boardroom, ValueAct tries to exert a strong influence.
"We don't come in guns blazing," Mr. Ubben told CNBC in 2012, adding that "Our goal is to not come in with an agenda, and to lead a fact-based decision making process in the boardroom. And surprisingly boards will respond really positively to a not-emotional conversation where there is more information that is being delivered than just comes from the CEO."
Those board seats have come at companies such as Adobe Systems, Motorola Solutions Inc. and, most notably, Microsoft Corp.
ValueAct bought $2-billion (U.S.) of Microsoft stock. Analysts were initially skeptical that ValueAct could have an influence.
In the year after that, ValueAct gained a seat on the board. Microsoft got a new chief executive. It's not clear that the CEO departure was related (and departing CEO Steve Ballmer said it was not). However, ValueAct's board representative was involved the search for Mr. Ballmer's replacement.
As this played out, ValueAct did well as the market has reassessed Microsoft's prospects and sent the stock higher.
As for Agrium, it may be that a more collegial approach might play well with shareholders.
"Jana was a little too aggressive, a little too critical," said Mr. Damas. "Who would want guys like that tearing the place down."