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Jana declares war on Agrium

Another New York hedge fund, another looming confrontation with a major Alberta company. Meanwhile, South American energy stocks get a boost from Pacific Rubiales's takeout of C&C Energia

Nov 19, 2012

by Max Fawcett

Once again, a New York-based hedge fund is taking an iconic Alberta company to task over perceived mismanagement issues. Time will tell whether Jana Partners enjoys the same success as Pershing Square Capital did in its encounter with Canadian Pacific (TSE:CP), but so far the script seems awfully familiar. Today it issued a statement proposing five new directors for Agrium (TSE:AGU)’s 11-member board that include Jana managing partner Barry Rosenstein and former federal agriculture minister Lyle Vanclief. And as the Calgary Herald reported today, Jana used the announcement to bang the drum again for its case that Agrium ought to spin its retail arm off into a separate company. Agrium’s unwillingness to do so, it claims, is holding the stock back – although its year-to-date gain of 45.8 per cent would seem to suggest that it hasn’t been very successful in that endeavour.

Beleaguered shareholders of Alberta-based exploration and production companies operating in South America got some good news today, as Pacific Rubiales (TSE:PRE) announced that it is entering into an arrangement with C&C Energia (TSE:CZE) worth an estimated $626 million. Under the terms of the deal, C&C shareholders will receive 0.3528 common shares in Pacific Rubiales along with one share in a new exploration and production company that will be formed out of the deal. This is obviously good news for them, but it might be even better for Petrominerales (TSE:PMG) and Parex Resources (TSE:PXT) shareholders.

According to FirstEnergy, the terms of the deal and the valuation that Pacific Rubiales placed on C&C’s assets should give a boost to the way the market looks at the holdings of Petrominerales and Parex as well. It assigns a top pick ranking to Parex Resources, and gives it a $9 price target, which is a 78 per cent premium on where it’s currently trading. “Parex’s asset base would fit with Pacific Rubiales’s strategy of consolida­tion and securing light oil reserves and production to be used as a diluent for the company’s heavy oil produc­tion,” analyst Darren Engels wrote. Petrominerales, which gets a slightly less enthusiastic outperform ranking, is targeted at $16 per share, or a 111 per cent premium over its current price. “Petrominerales’s reserve and produc­tion base is light oil and located in the Llanos Basin of Colombia. The company also has a significant heavy oil acreage position, as well as a 5 per cent working interest in the Ocensa pipeline and 9.7 per cent working interest in the Bicentenario pipeline,” Engels said. “All of these assets would be potentially compel­ling for Pacific Rubiales and/or Ecopetrol, which are competing for diluent sources, exploration acreage that is prospective for heavy oil, and pipeline capacity to move volumes that are currently constrained.”

And in our stock picking contest, we have – curiously enough – two Venture Publishing employees at the top of the heap. Who said the publishing industry was doomed?




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