Expanding retail business

Agrium believes the strength of its Retail segment is in its “countercyclical cash flow generation and stability in earnings as well as enhanced acquisition profile.” The company is targeting growing Retail earnings before interest, tax, depreciation, and amortization (or EBITDA) to $1.3 billion in 2015. It wants to expand its brand offerings and decrease acquisitions to increase its retail distribution footprint.

We noted earlier that Agrium has a competitive advantage. None of its fertilizer peers—like PotashCorp (POT), CF Industries (CF), and Mosaic (MOS)—have a retail business. This makes Agrium (AGU) the only fertilizer wholesaler in the VanEck Vectors Agribusiness ETF (MOO) with a retail business.

Why Agrium wants to expand its retail business via acquisitions

Growth driven by Viterra acquisition 

Agrium’s acquisition of Viterra closed on October 1, 2013. It provided its Retail segment with over 200 new retail branches across western Canada and distribution assets in Australia. Agrium said in its annual report that the acquisition positions the company as the largest agricultural retailer in Canada.

It anticipates synergies of ~$15 million annually from the Viterra acquisition by the end of 2015. It will have synergies from economies of scale. It will also grow the distribution of proprietary crop protection, nutrient, and seed products.

It added that the acquisition is also expected to offer potential synergy opportunities for Agrium’s Wholesale business unit. It also acquired a number of smaller independent retail operations in 2013.

Announces stake acquisition in CH Biotech

Recently, Agrium acquired an equity stake in CH Biotech. It got exclusive, worldwide distribution rights to CH Biotech’s existing plant health technologies. It also got access to new product and technology opportunities.

CH Biotech is an agricultural technology company that develops and markets plant health and nutrition technologies. Agrium’s management noted that the acquisition adds to the company’s offering of next-generation plant health technologies. They noted that technology in the plant health sector is rapidly advancing. The company wants to benefit from similar “complementary and innovative relationships.”

A release on the acquisition also said Agrium’s Loveland Products already market and distribute several CH Biotech technologies including the brands Radiate, NutriSync, and Consensus. The brands are product technologies focused on improving root development, stress reduction, and nutrient utilization.

Focus on plant health technologies as well as expansion of proprietary seed brands

Agrium said it added a stake in Agricen earlier in 2014. Agricen is an agricultural technology company that delivers innovative biochemical-based solutions and products for plant nutrition.

It also announced a commercialization and technology development agreement for soil and plant health nutritional products with Actagro. Agrium said in a recent investor presentation that its focus is on expanding its proprietary seed brands through seed distributor and breeding program acquisitions.

The next part of this series, we’ll discuss the results for Agrium’s wholesale segment.

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