Agrium Inc. AGU today commented on the report issued today
by Institutional Shareholder Services Inc. ("ISS"). The report's
recommendation puts ISS at odds with the unequivocal statements of support
for Agrium's Board nominees issued over the past week by three of Agrium's
largest institutional shareholders: Letko Brosseau & Associates, Aimco and
bcIMC.
The report's recommendation also puts ISS at odds with three other proxy
advisory firms, including Glass, Lewis, a leading international proxy
advisory firm, Pensions Investment Research Consultants (PIRC), a UK-based
proxy advisory firm, and Egan-Jones. It also puts ISS at odds with the views
of the equity research community, which has strongly endorsed Agrium's
integrated strategy, as well as the company's analysis of JANA's flawed
ideas, and at odds with independent corporate governance experts, who have
severely criticized JANA's 'golden leash' pay arrangements for their
short-term orientation and for undermining notions of director independence.
As an equity research analyst from CIBC wrote this morning, "ISS' reasoning
includes that JANA's goal is NOT to break up (Agrium) (clearly ISS drinking
a bit of JANA's "Koolaid" as JANA has been very clear with myself and others
from day 1 that AGU's break-up was JANA's exit strategy)."
Likewise, ISS has accepted JANA's portfolio weighted methodology, which has
been rejected by all 29 equity research analysts covering Agrium. Glass,
Lewis has said "JANA relies upon a poorly justified weighting methodology in
order to arrive at figures sufficient to support the remainder of its
arguments. We regard this analysis as misleading at best, and believe
shareholders should refrain from relying on any conclusions derived
therefrom."
"In addition to being offside with the equity research community, leading
independent governance experts, three other proxy advisory firms and many of
Agrium's largest institutional shareholders, ISS' decision runs counter to
its own published criteria for evaluating short-slate dissident campaigns in
Canada," said Agrium Board Chair Victor J. Zaleschuk. "Those criteria
require a dissident to demonstrate that Board change is warranted. Having
completely failed this test, there is no basis for JANA to receive even a
single board seat. It is also shocking that ISS - as a self-proclaimed
arbiter of good governance - would effectively endorse JANA's 'golden leash'
payment scheme. This decision puts ISS way outside the mainstream of the
corporate governance community. ISS simply got this one wrong."
"A significant number of large institutional funds have told us they will
override any ISS recommendation in favor of JANA and vote instead for
Agrium's Board nominees on the white proxy. As with several other situations
where ISS has supported dissident slates only to later see those dissident
slates defeated by shareholders, we are confident that our shareholders will
rightly and roundly defeat JANA's nominees," said Mr. Zaleschuk.
JANA is seeking to break up Agrium and implement other ideas that Agrium has
demonstrated would destroy shareholder value. JANA has provided no credible
evidence to the contrary and has little support from other Agrium
shareholders or the equity research community. JANA has also failed to
demonstrate that its dissident nominees can be trusted to act in the best
interests of the corporation given their explicit and short-term oriented
financial ties to JANA.
On this point, Aimco, which is one of Agrium's largest shareholders and one
of the largest investment funds in Canada, wrote: "We struggle with a
governance model where JANA Partner's dissident nominees are compensated in
a different manner than other directors. This has negative effects on the
board: lack of independence, fragmentation, and reduced efficacy. JANA's
plan is misaligned with the interests of long-term shareholders."
ISS' decision fails to properly consider the following facts:
-- Agrium's integrated strategy has delivered a 467% shareholder return
since it was initiated in late 2005
-- Agrium is one of the best performing stocks in North America over the
past eight years, and on any accepted basis its 1-, 3-, and 5-year share
price performance is very strong
-- Agrium's Board has an excellent governance track record, including a
robust and ongoing board renewal program that since 2005 has added the
fresh perspectives of seven of the current 13 highly-qualified Board
members
-- Agrium delivered record earnings and strong cash flow in 2011
-- Agrium delivered record earnings and cash flow in 2012
-- Agrium has increased its dividend 18-fold since 2010, in line with
increased earnings and cash flow and consistent with the actions of
Agrium's competitors
-- Agrium, not JANA, structured its pending acquisition of the Agri
Products business from Glencore, allowing Agrium to return C$900 million
of excess proceeds directly to shareholders through a share repurchase
in October 2012
-- By endorsing JANA's analysis and helping to promote its break-up plan,
JANA's dissident nominees have jeopardized their credibility,
objectivity and independence
-- As Agrium stated in a March 22, 2013 press release: "Agrium has
maintained from the very beginning that JANA's "portfolio-weighted
composite" is not a measure of performance that Agrium uses or accepts.
Presentation of this concept by Agrium was simply to illustrate the
misinformation in what JANA was advocating."
-- ISS wrongly attributes the use of EBIT/GP as "an appropriate measure for
distribution companies" to Agrium. This too is plainly wrong. In a March
19, 2013 letter to ISS, Agrium Executive Vice President and Chief
Financial Officer Stephen Dyer, wrote:
-- JANA Partners introduced this measure in their January 23, 2013
presentation and continued to use it in their Proxy Circular even
after Agrium's January 28, 2013 Analyst Day where we illustrated
that Agrium retail's EBITDA margins were highly superior to those of
our competitors.
-- EBIT to Gross Profit is not a metric that either Agrium or its
competitors use. We do not see value in this measure as it is not a
margin calculation but a ratio mixing cash and non-cash accounting
numbers. Agrium retail has very strong margins as evidenced by our
high EBITDA margins which you have reviewed. Agrium retail margins
have always significantly exceeded margins of our closest direct
agricultural retail peers (Royster-Clark and UAP). Agrium has
consolidated Royster-Clark, UAP and many tuck-in acquisitions (all
with EBITDA margins averaging well below 6%) since 2006 and has
successfully increased its total North American EBITDA margins to
over 9%.
-- JANA remains committed to the "golden leash" payment scheme despite
strong negative reactions by shareholders, governance experts and others
-- JANA's dissident director pay scheme demonstrates that JANA's nominees
are not aligned with other shareholders and that JANA has a short-term
vision for Agrium of less than 30 months
Agrium Shareholders: The Proxy to Vote is WHITE
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