Agrium Inc.

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Agrium Inc.

13131 Lake Fraser Drive Southeast
Calgary, Alberta T2J 7E8
Canada
Telephone: (403) 225-7000
Toll Free: (877) 247-4861
Fax: (403) 225-7609
Web site: http://www.agrium.com

Public Company
Incorporated: 1992 as Cominco Fertilizers Inc.
Employees: 4,667
Sales: $2.83 billion (2004)
Stock Exchanges: Toronto New York
Ticker Symbol: AGU
NAIC: 325320 Pesticide and Other Agricultural Chemical Manufacturing; 325312 Phosphatic Fertilizer Manufacturing

Agrium Inc. is a producer and retailer of nitrogen, phosphate, potash, and sulfate fertilizers. Agrium produces its fertilizer at a dozen plants in Canada and the United States. The company also owns a 50 percent stake in a production facility in Argentina. Agrium sells its fertilizer through 206 retail centers in the United States, marketing fertilizer as well as crop protection products, seeds, and services to growers in 22 states. In South America, Agrium operates 33 farm centers in Argentina, four stores in Chile, and two stores in Bolivia.

Origins

Although much of what constituted Agrium in the 21st century was built during the 1990s, the company's roots stretched back to the beginning of the 20th century. Agrium was formed as a business unit within the corporate structure of another company, The Consolidated Mining and Smelting Company, which was formed in 1906 when several businesses controlled by the Canadian Pacific Railway were consolidated into a single entity. Consolidated Mining, which changed its name to Cominco Ltd. in 1966, operated a number of mining operations throughout its history, but relied on its core Sullivan Mine for much of its business during the 20th century. The Sullivan Mine began producing in 1909, yielding $20 billion worth of lead, zinc, and silver by the time it was shuttered in 2001. From the success of the Sullivan Mine and the other mines owned and operated by the company, Cominco gained the size and the financial resources to fashion itself into an integrated metals concern. As part of its development into a more well-rounded company, Cominco formed a division to market fertilizer byproducts from its British Columbia metals plants, a division that became known as Cominco Fertilizer Ltd., the predecessor to Agrium.

Cominco's involvement in the fertilizer business began in 1931 when the company began producing ammonia—the basic building block of nitrogen fertilizer—and phosphate fertilizer in British Columbia. During the ensuing decades, Cominco Fertilizer emerged as an innovator in its field, developing the first nitrate prilling (pellet-forming) process in the 1940s and the first granulation process for urea and ammonium nitrate during the 1960s. The division's first decades also included an increase in the number of fertilizer facilities under its control, constituting the assets that would be inherited by Agrium. In 1965, the division's Homestead nitrogen operations in Nebraska began operating, followed by the addition of nitrogen operations in Borger, Texas, three years later. In 1969, a potash facility was established in Saskatchewan. In 1977, nitrogen operations in Carseland, Alberta, began production, followed a decade later by the establishment of nitrogen facilities in Joffre, Alberta. Despite the division's pioneering work and its lengthy involvement in the fertilizer business, Cominco gave relatively little management attention to Cominco Fertilizer. Fertilizer sales represented only a small portion of the mining company's total revenue volume, relegating Cominco Fertilizer to a minor role within Cominco Ltd.'s operations. Consequently, the division received limited financial support from its corporate parent, never realizing its full potential while governed by Cominco Ltd.

1993 Spinoff

Cominco Fertilizer's fortunes improved dramatically when the company gained its independence, an event that ended decades of passive management and replaced it with dynamic leadership intent on pursuing growth aggressively. During the early 1990s, Cominco Ltd. decided to spin off its fertilizer division to the public, a decision that led to the incorporation of Alberta-based Cominco Fertilizer in December 1992 in preparation for the division's initial public offering of stock. Several months later, in mid-1993, Cominco Ltd. spun off its fertilizer business, retaining an 18 percent stake in the business and selling the remainder to the investing public. Cominco Fertilizer's debut as an independent company gave investors an opportunity to invest in one of only a few public companies in North America exclusively involved in the fertilizer business, referred to as a "pure play" in investing circles. Investors were presented with a company involved in producing nitrogen and potash (a compound containing potassium), two of the four major nutrients essential to the growth of all plants. (Nitrogen, phosphorous, potassium, and sulfate are the four major nutrients. They are depleted when crops are grown and replaced by the application of fertilizer.)

Cominco Fertilizer, as it set out on its own, was heavily reliant on nitrogen fertilizer, deriving 72 percent of its production value from nitrogen production facilities in Alberta, Nebraska, and Texas. The company derived the remaining 28 percent of its production value from potash, which it produced from a single mine in Saskatchewan. Aside from the production, or wholesale, part of its business, Cominco Fertilizer was supported by retail operations consisting of farm centers that sold fertilizer directly to growers. The cornerstone of the company's retail operations was its investment in Crop Production Services, a major U.S. retailer of fertilizer. Cominco Fertilizer had purchased a 33 percent stake in Crop Production Services in 1989, which was increased to 86 percent in 1993, giving the company control over approximately 120 farm outlets in the United States. Cominco Fertilizer also operated storage facilities placed strategically to support its fertilizer activities, the third dimension of the company's business.

Once set free from the control of Cominco Ltd., Cominco Fertilizer flourished, developing into one of the largest fertilizer concerns in the Western Hemisphere. Under the leadership of President and CEO John Van Brunt, who would guide the company during its first decade of independence, Cominco Fertilizer recorded impressive growth, expanding its production, retail, and distribution holdings, broadening its geographic scope of operations, and increasing its market exposure by adding phosphorous and sulphur to its product mix, making the company a producer of all four major nutrients. Cominco Fertilizer's maturation as a fertilizer producer and retailer was highlighted by acquisitions, Van Brunt's primary means of increasing the company's revenue volume from CAD 290 million in 1993 to more than CAD 2 billion by the time he departed.

Van Brunt's expansion program began in earnest in 1995, the year the company changed its name to Agrium Inc. The year began with the acquisition of Western Farm Services, a deal that added 100 retail outlets in California and the Pacific Northwest. The acquisition, coupled with the company's purchase of the 14 percent of Crop Production Services it did not already own in 1995, doubled its retail base, giving it more than 200 farm centers that sold fertilizer and chemicals to growers. The company's revenue from the retail side of its business shot upward as a result, jumping from CAD 365 million in 1994 to CAD 753 million in 1995. On the production side, a major addition to the company arrived in October 1995 when Van Brunt completed the CAD 290 million acquisition of Nu-West Industries, a phosphate fertilizer producer that had filed for bankruptcy in 1990 after expanding imprudently during the late 1980s and reemerged recapitalized in 1993. Nu-West's core product was superphosphoric acid, a liquid fertilizer used for corn, wheat, alfalfa, and soybean crops. Once Agrium absorbed Nu-West's operations, it had the capability to produce three of the four major fertilizer compounds.

While Agrium strengthened its business in North America, Van Brunt announced his ambitions for the company's growth abroad. In 1995, when Agrium conducted all of its business in North America, Van Brunt revealed his intention to have one-sixth of the company's assets located outside North America by 2000. To achieve this goal, he set his sights on Argentina, a country whose economy relied heavily on agricultural activity. Van Brunt planned to build the first major nitrogen fertilizer plant in Argentina, ordering the construction of a facility in the Neuquen province, where production was slated to begin by the end of the decade. Van Brunt also pushed forward with plans to develop a retail presence in Argentina, forming Agroservicios Pampeanos S.A., which became an Agrium retail subsidiary. Construction of 18 retail centers in Argentina began in 1996, adding the first overseas dimension to the rapidly growing Agrium.

Company Perspectives:

Agrium is an acknowledged leader in product quality even in an industry where high quality products are the norm. The focus on continuous improvement and "best practices" reflects a philosophy that success depends on the customers' success. Agrium's reputation is built on more than 70 years of experience in a wide variety of operating environments. From its origins as one of North America's first fertilizer producers, the Company has come a long way and is still growing strong.

While construction was underway in Argentina, Van Brunt plotted what would be his boldest move on the acquisition front. In 1996, he targeted a company named Viridian Inc. as his next acquisition candidate. Viridian's background was similar to Agrium's origins: a fertilizer business that grew out of a metals business. Viridian began its business life as Sherritt Gordon Mines Limited, which owned a nickel-copper mine in Lynn Lake, Manitoba. As part of its mining business, the company developed a hydro-metallurgical process that used ammonia, which eventually led the company to establish a fertilizer plant, becoming, like Cominco Ltd., a vertically integrated company. Instead of spinning off its fertilizer business, Viridian's management chose to spin off all of the company's other assets. After acquiring a fertilizer plant from Imperial Oil in Redwater, Alberta, in 1994, Viridian quickly divested its other assets, spinning off its metals, oil and gas, and technology businesses in 1995 and 1996. By the time Viridian was acquired by Agrium in December 1996, the company operated solely as a fertilizer business, generating $527 million from fertilizer sales in 1995. When Viridian's operations were absorbed by Agrium, the combined company boasted annual revenue of $1.67 billion. The acquisition primarily strengthened Agrium's nitrogen and phosphate business, but Viridian's Redwater plant also produced sulphur, giving Agrium the capability of producing all four major fertilizer compounds.

Agrium in the Late 1990s

Agrium's progress between 1993 and 1996 did much to increase the company's stature. Entering 1997, the company ranked as the Western Hemisphere's second largest nitrogen producer, its third largest potash producer, and its fourth largest phosphate producer. In the wake of this substantial surge in growth, the company expanded at a slower pace, focusing instead on improving its balance sheet and the efficiency of its operations. The company did add to its operations on several occasions, however, ensuring its prominence within the fertilizer business. In 1998, the company acquired a phosphate mine in Idaho. The following year production at its phosphate mine in the province of Ontario commenced. The end of the 1990s also saw the company come closer to realizing its objective of establishing a production facility in Argentina. In early 1999, the company increased its interest in a joint venture project from 33 percent to 50 percent, giving it an equal stake with its partner Repsol-YPF S.A. in the construction of ammonia and urea plants in Bahia Blanca, Argentina. Production at the facility, managed by the joint venture company Profertil S.A., commenced in 2000.

As preparations were being made to begin production in Bahia Blanca, Van Brunt prepared to make another large acquisition, the last purchase he would make at Agrium. In September 2000, he acquired the agricultural products division operated by Union Oil Company of California, a CAD 321 million deal that gave Agrium ammonia and urea production facilities in Alaska and nitrogen production and distribution assets in Washington, Oregon, and California.

During the first years of the 21st century, depressed conditions in the fertilizer industry forced Agrium to reduce capital spending and to shelve plans for expansion. Van Brunt, after a decade of leading the company, retired in 2003, leading to the promotion of Agrium's chief operating officer, Michael Wilson, to the chief executive officer post. By the time Van Brunt retired, conditions in the fertilizer industry had improved, but Agrium did not make any meaningful move toward expansion until 2005. In February, the company began expanding throughout South America, acquiring 12 retail farm centers in Argentina, four retail locations in Chile, and two outlets in Bolivia. By this point in the company's development, annual sales eclipsed $2.8 billion, having grown nearly tenfold since Van Brunt began orchestrating Agrium's fast-paced expansion. The company's pace of growth during its first decade of independence made Agrium a global leader in the fertilizer industry, a standing that Wilson was charged with maintaining in the years ahead.

Principal Subsidiaries

Agrium U.S. Inc.; Agrium Nitrogen Company; Crop Production Services, Inc.; Western Farm Service, Inc.; Agroservicios Pameanos S.A. (Argentina); Nu-West Industries, Inc.; Viridian Inc.; Viridian Fertilizers Limited; Profertil S.A. (Argentina; 50%); Canpotex Limited (33.33%).

Principal Competitors

Potash Corporation of Saskatchewan Inc.; Terra Industries Inc.; CF Industries Holdings, Inc.

Key Dates:

1931:: Cominco Ltd. enters the fertilizer business.
1993:: Cominco Ltd. spins off its fertilizer business as Cominco Fertilizers Ltd.
1995:: Cominco Fertilizers changes its name to Agrium Inc. and acquires Western Farm Services and Nu-West Industries.
1996:: Agrium opens retail centers in Argentina and acquires Viridian Inc.
2000:: Agrium acquires the agricultural products division of Union Oil Company of California.
2005:: Agrium acquires retail stores in Argentina, Chile, and Bolivia.