Agrium (AGU.N) stock is up 40% this year on the heels of rising grain prices and cheap Natural Gas. The Canadian ag titan has been entertaining proposals by Jana Partners of New York to split their retail and wholesale operations since the spring of this year. Jana, which is Agrium's largest shareholder, has a 4.1% stake and suggested the split as a way of counterbalancing market volatility and to make shareholders some quick cash.
Agrium's board unanimously rejected the split citing substantial risk with limited sustainability. Historically, margins have favored the wholesale side boosting profits above that of the retail wing. But if Natural Gas prices spike, these wholesale margins would suffer. In this case, Agrium is insulated from market forces to some degree by it's retail operations.
Natural gas prices are at all time lows increasing AGU's margins but with the largest known inventory of all of the ag giants, Agrium can hedge against market volatility with its own supplies. As a result Agrium can directly control pricing both to wholesalers and to end users. Jana's position states that the working capital tied up in this inventory should be returned to the shareholders and that is the rub.
Rather than fragmenting the company in boom time for quick profits, Agrium is taking the long view and rolling their good fortune back into retail acquisition. Reuters reported on Monday that Agrium has deals pending with two separate companies to acquire 249 retail outlets in Canada and Australia. Clearly, Agrium is taking its retail distribution arm seriously and has no intention of splitting it off.