The recent Agrium- Jana spat seems like a story straight out
of a Jeffery Archer book. Except that in an Archer book, activist shareholder
coups are the result of ulterior motives of business rivals. In case of Jana
Partners though, which in the past has managed to ‘de-conglomerate’ (for want
of a better word), the likes of McGraw Hill, the motive is to unlock value in
Agrium. A value that they believe has been lost in translation.
The case Agrium makes is that their presence across the
whole value chain gives them better bargaining power. They apparently got access to the Viterra
acquisition with those terms because they were all across the value chain. Jana
on the other hand believes that such omnipresence actually prevents Agrium from
generating a value it could potentially have. So they would like to have the
retail arm and the potash business hived off. Jana also claims that they would
like to see better corporate control and better cost control in the company.
A rather nasty war of words has since ensued. As the largest
shareholder of Agrium, with over 7.5%, Jana definitely has a strong say in the
company’s decisions. And they are certainly taking the corporate governance
duties of a shareholder very seriously, by sinking in a lot of money, time, effort
and might into this proxy battle. They have apparently spent over $1 billion
towards acquiring the 7.5% stake.
If they do manage to get two of their own people on the
Agrium board, the situation could end up like a coalition government, with key,
contentious decisions almost never getting through, in an attempt to unlock the
proposed value.
The question though is, whether value has indeed been lost.
A simple look at Agrium’s share price 10 years ago shows a growth of almost 83%
over the past decade, when inflation adjusted S&P 500 total return was
around 46%. So what value is Jana looking to create? Is this value really
quantifiable? Must one take their past track record with McGraw Hill and others
as a benchmark? Is it really worth taking the trial-and-error risk of shuffling
the board with one of the world’s largest fertilizer makers? Well, the
shareholders’ opinion is all that counts and the end is indeed nigh.
That said though, the activism in shareholding is what is
most appealing in these proceedings. Not very long ago, I had the opportunity
to learn about the annual shareholder meeting of a certain company, the name of
which we will keep anonymous. Before I start off describing the story, I should
maybe make it clear that this was a shareholder meet for a small firm, not a
Fortune 500 place. Nonetheless, the inevitable comparison with the on-going
Jana-Agrium fight did happen, vis-à-vis shareholders’ role in capital markets.
So the first thing I found funny with this firm, was that
the average age of the handful of shareholders present in the meeting was over
70, at least. When casually asked why this was so, an officer of the company
said that in general it is the retired community that invests in stocks!
Secondly, there was a piece of material information – a problem that could
potentially hurt future prospects, that
had not been universally and formally disclosed. Inadvertent leaks were all
that was out. When quizzed about it, the issue was very cleverly skirted. The
shareholders were not very persistent and the fact that the question went
unanswered did not raise any red flags, whatsoever. The board has been made up
of 4 people, who have been on the board, since the company went public. Maybe a
couple of people kept getting added and subtracted, but the same 4 usual
suspects remained throughout. Not much is known about them, or what they do in
the company. At the meeting, the directors were ‘elected’ and the resolution
passed, all within 15 minutes, with the handful of people in the room too busy
with their cup of tea, to even raise their hands if they dissented. A couple of
harsh questions were asked, which got long-winded non-answers in response.
These responses were not counter-questioned.
The stark contrast with Agrium did come to the fore. At the
end of the day, benefiting from an equity investment lies in the shareholders’
hands. If I want my money to work for me, I would need to put in the effort
that is required. Blaming the management for poor leadership and mismanagement
is all well. But it is finally in the shareholder’s best interests to set
things right if she wants to and indeed, corporate governance mechanisms do
exist that enable her to do so. It’s just that these methods are disregarded.
In most cases, shareholders are unaware of their rights. And it is not very
often that boardroom battles end up in the living room, as has been the case
with Agrium. The hope though, is that this should be an essential lesson to
every shareholder. That regardless of whether the firm whose shares you hold is
worth 2 million or 200 billion, the power to set things right does exist in
your hands if you wish to exercise it.
