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Agrium fires back at Jana

Fertilizer firm and hedge fund locked in battle for support of shareholders

The battle for Agrium Inc. shareholders heated up Monday as the fertilizer producer insisted keeping its retail division is a better strategy than the break-up proposed by activist pursuer Jana Partners.

Agrium delivered the first volley with a 12-page update on its dealings with the hedge fund, sent to shareholders. The report concluded that retaining its retail division will provide greater value than severing it from the company.

Later in the day, Jana fired back with its own statement, contesting some points in Agrium's filing. The hedge fund maintained that Agrium's performance - particularly its retail department - has been disappointing.

Monday's exchange was the latest in a series over the past few weeks as the two companies go head to head for the support of shareholders.

Agrium's note said Jana approached the company on May 31 to report it owned less than 5 per cent of the company's shares and that it might acquire more. The hedge fund also said it could turn to a private-equity partner for support in a leveraged buyout.

Jana, in its statement, took issue with Agrium's assessment that the hedge fund "did not dispute" the valuation of the retail business, or challenge a list of comparable companies (as compiled by Agrium's banker Morgan Stanley) in a recent meeting. In fact, Jana said it sees the retail business as "dramatically undervalued" compared to its peers. "We could not have been clearer on this point in our public and private communications with Agrium and to suggest otherwise is completely false," the statement read.

Jana also maintains that Agrium lags behind CF Industries Inc. (another "pure play" fertilizer company) and other comparable companies. Along with structural issues, Jana claims Agrium's stock is lagging its potential, and blames that on poor performance by the retail division, climbing costs and a board that lacks sufficient knowledge of retail distribution.

Jana doesn't dismiss the possibility of a private-equity bid, but it no longer seems to be as focused on the strategy. "While it is true that private-equity interest would undoubtedly serve as a backstop or even provide a premium to a standalone retail's market value, we continue to fully believe the market would ascribe significantly greater value to retail independently than as part of Agrium," Jana's statement read.

And while Agrium didn't like Jana's description of the company as a "conglomerate" in its filing, the hedge fund continued to use that terminology in its reply, saying Agrium's "conglomerate structure" was partly to blame for its alleged under-performance.

The fund did not expressly address, however, whether it would buy more shares in Agrium.

At $3-billion in assets under management, its hesitation is understandable. The shares that Jana already holds are worth roughly $700-million, which means close to a quarter of its total assets under management are tied up in the fertilizer producer.

Agrium Inc. (AGU)

Close: $99.85, up 99¢

© 2007 The Globe and Mail. All rights reserved.

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