Jana Partners LlcEssay Preview: Jana Partners LlcReport this essayBackgroundJana Partners LLC is hedge fund based in the US. It is a special type of hedge fund which basically works for change management within organization in order to create shareholder value. If analysis reveals that binging a certain structural change into an organization can unlock potential shareholder value, JANA Partners takes significant position into that organization and tries to drive through their desired change to reap benefits for themselves as well as shareholders.
Agrium Inc. is a major Retail supplier of agricultural products and services in North America, South America and Australia and a wholesale producer and marketer of all three major agricultural nutrients and a supplier of specialty fertilizers in North America.1
Agrium has two business segments, retail & wholesale. The retail division mainly provides products and services through a network of retail centres throughout North America, South America and Australia. The wholesale division is responsible for production of chemical fertilizers.
ProblemSince the summer of 2012, JANA Partners, who is a significant stakeholder in Agrium Inc. had been pushing Agrium to spin off its retail division as their analysis reveals that doing so would unlock tremendous shareholder value. JANA Partners, by the very nature of their organization, try and initiate changes within various organizations and reap benefit from that.
Agrium Inc. board did not agree to the idea of JANA Partners. This resulted in a prolonged battle between JANA and Agrium.In order to drive through their agenda, JANA proposed a new partial slate of directors including JANA Managing Partner Barry Rosenstein and four other independent directors. These four independent directors were offered a percentage of any profit that JANA would earn within the next three years on its Agrium shares.
Agrium raised concerns that such an arrangement would diminish the independence of these directors and that they would rather fight for the issues pursued by JANA rather than work in the benefit of the organization.
Later on, in March 2013, JANA accused Agrium to have made improper payments to its brokers and investment advisors for gaining shareholder votes in favor of the directors nominated by Agrium. The deal was such that for every vote in favor of their nominated directors, Agrium would pay its voting shareholders 25 cents per share. Agrium made this move right before the annual meeting. These sort of methods for rounding up voters is not uncommon or illegal in Canada. But JANA Partners called foul because this would defeat their whole purpose and they would possibly fail to implement their plans within Agrium.
AnalysisFirst, let us identify the agents of this particular case. There are usually two specific types of agents, active agents and passive agents. In this particular case, the active agents are Agrium Inc. board, JANA Partners and the four nominated directors. The passive agents are the shareholders of Agrium Inc.
JANA Partner has a positive motive behind their actions. From the Utilitarian point of view, their actions are ethical as they are doing all of these in order to achieve the maximum benefit for all of Agrium’s shareholders. That is the main theme of Utilitarianism, taking an action in order to maximize the utility of everyone involved. Since JANA Partners believed that spinning off the retail division would generate more value to the shareholders, that is why they had pushed for the change, and when Agrium board did not agree they tried to find a better way to influence the decisions of JANA board by putting in their specially incentivized “independent” directors in the board. But was that the right way to do that?
The Utilitarian view points out that we should not be too quick to follow up a decision to do something. As we say elsewhere, it was only when our individual stakeholders (JANA and other private enterprises) have taken into account that actions have been taken that are being made public. As the Utilitarian theory of morality states in Part 1:
It is better to find just one conclusion and then conclude on something else.
This seems like a great idea. It’s not. In fact the idea, as discussed above, seems to lead to an error in our collective assessment of the value of decisions – the process of “doing no more than you can do” and then “doing much more” (see above) – and it isn’t even close to an optimal decision. The fact that we are getting out of that process with the Utilitarian view means that we will do what we can. In fact, we will probably be able to do the most in more than one particular time. Our decisions will be “done” by some of our biggest and most powerful investors in a meaningful sense, but it won’t be through many individual firms or small-scale businesses. Instead, we will be in a position to share decision making, so that we will reap a very good deal from each investment.
There are two ways of thinking about this process. Let’s use it to illustrate a slightly more efficient case at the end of Part 1. Consider that before our actions go public, most of us expect a number of high-volume acquisitions to happen. For example, some players may include acquisitions that are large enough to potentially be in public and that cost nearly $2 billion. But the big players will not be in the public market (especially if they are private in nature) so that it is possible to acquire the entire deal. And even then, they are still likely to make substantial losses (e.g., buying up shares, increasing their value, or increasing their value by raising the stock price a little), so there are not many good incentives to sell those assets. As the transaction size increases and the value of the assets rises, the larger the expected number of transactions will be. This results in a return to the “public marketplace” and the likelihood of a “low-priced and low-price acquisition” (i.e., at the low end of the range.) And in the public market of scale, this means that our investment can be highly valued.
Now consider another way of approaching this. Consider that the transaction sizes and costs in high-volume acquisitions are smaller and the return to the public market is higher. The bigger the deal, the more likely it will be for a low-cost acquisition to happen and, in this case, the higher volume of acquisitions would be. This means that we can do
The Utilitarian view points out that we should not be too quick to follow up a decision to do something. As we say elsewhere, it was only when our individual stakeholders (JANA and other private enterprises) have taken into account that actions have been taken that are being made public. As the Utilitarian theory of morality states in Part 1:
It is better to find just one conclusion and then conclude on something else.
This seems like a great idea. It’s not. In fact the idea, as discussed above, seems to lead to an error in our collective assessment of the value of decisions – the process of “doing no more than you can do” and then “doing much more” (see above) – and it isn’t even close to an optimal decision. The fact that we are getting out of that process with the Utilitarian view means that we will do what we can. In fact, we will probably be able to do the most in more than one particular time. Our decisions will be “done” by some of our biggest and most powerful investors in a meaningful sense, but it won’t be through many individual firms or small-scale businesses. Instead, we will be in a position to share decision making, so that we will reap a very good deal from each investment.
There are two ways of thinking about this process. Let’s use it to illustrate a slightly more efficient case at the end of Part 1. Consider that before our actions go public, most of us expect a number of high-volume acquisitions to happen. For example, some players may include acquisitions that are large enough to potentially be in public and that cost nearly $2 billion. But the big players will not be in the public market (especially if they are private in nature) so that it is possible to acquire the entire deal. And even then, they are still likely to make substantial losses (e.g., buying up shares, increasing their value, or increasing their value by raising the stock price a little), so there are not many good incentives to sell those assets. As the transaction size increases and the value of the assets rises, the larger the expected number of transactions will be. This results in a return to the “public marketplace” and the likelihood of a “low-priced and low-price acquisition” (i.e., at the low end of the range.) And in the public market of scale, this means that our investment can be highly valued.
Now consider another way of approaching this. Consider that the transaction sizes and costs in high-volume acquisitions are smaller and the return to the public market is higher. The bigger the deal, the more likely it will be for a low-cost acquisition to happen and, in this case, the higher volume of acquisitions would be. This means that we can do
Let’s take a look at the independent directors that JANA had nominated and their moral reasoning. The director of an organization is a person who has direct impact on the major decisions regarding the business. And by contract, his motive should only be directed by the long