Jana Partners Llc

Background

Jana 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.

Problem

Since 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.

Analysis

First, 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?

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