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Jana Partners: Agrium Breakup Is Shale Boom Bet


Jana Partners, a hedge fund with an activist investing bent, is adding to its bet on a shale drilling boom and its case for a breakup of fertilizer giant Agrium (NYSE:AGU) in the same breath.

Jana disclosed a $500 million-plus investment in Agrium in mid-August and said in a letter to the Calgary-based company's board that it should consider splitting its retail business from a much larger wholesale business, unlocking hidden value in the conglomerate.

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Doubling down on the investment thesis, Jana chief executive Barry Rosenstein said at the Value Investing Congress on Monday that he will continue to push for a wholesale and retail unit split, noting that a shale drilling boom has significantly lowered the input costs for Agrium's nitrogen and fertilizer businesses on the wholesale side of the operations.

The hedge fund investor said Agrium's retail business could be worth $15 to $20 per share independently and that, in total, Agrium may be undervalued by $50 a share as a result of its conglomerate structure.

Agrium shares rose between 2% and 3% in late afternoon trading on Monday, adding to year-to-date gains nearing 60%. The company's shares hit a 52-week high in the early afternoon as the Jana Partners CEO was speaking at the conference, at above $107.

Rosenstein said as a result of lower natural gas input costs and the company's overall scale, "Agrium operates at a structural advantage" to its peers. He again pressed for a split of a retail business catering to food retailers and farmers from a more commodity-price sensitive wholesale nitrogen and fertilizer business to fully show the company's advantages. Agrium's retail business accounts for 30% of Agrium's forecast 2012 earnings before interest taxes depreciation and amortization [EBITDA], while its wholesale accounts for the remaining 70%.

On Aug. 14, Jana disclosed it held 6.5 million shares of Agrium valued at $575 million as of June 30, according to a filing with the Securities and Exchange Commission. With the disclosure, Jana unveiled the logic of splitting Agrium's retail business from wholesale; however, a separate statement from Agrium dismissed such an action.

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