UPDATE 3-Canada Bread rises on news Grupo Bimbo to buy it for $1.7 bln

Wed Feb 12, 2014 12:45pm EST

(Adds Maple Leaf CEO interview, Grupo Bimbo and investor comments)

By Euan Rocha and Rod Nickel

TORONTO/WINNIPEG, Manitoba Feb 12 (Reuters) - Mexico's Grupo Bimbo will buy Canada Bread Company for C$1.83 billion ($1.66 billion) in cash, Canada Bread said on Wednesday, allowing the Canadian company's parent Maple Leaf Foods to focus on its meat business.

Grupo Bimbo, one of the world's largest bread makers, will pay C$72 for each share of Canada Bread, a 7 percent premium to the Canadian company's closing price on the Toronto Stock Exchange on Tuesday.

The purchase builds on Grupo Bimbo's large U.S. acquisitions in recent years and strengthens its position as a top breadmaker in North America.

Bimbo has expanded its footprint in recent years, acquiring Sara Lee Corp's North American bakery business for $959 million in 2010 and buying Hostess Brands' Beefsteak bread in 2013.

Shares of Canada Bread rose 7.3 percent to C$72.14 in afternoon trading on the Toronto Stock Exchange, with the stock having surged 22 percent since October, when food processor Maple Leaf said it was mulling the sale of its 90 percent stake in the company. Maple Leaf shares dipped 0.6 percent to C$15.75, while Grupo Bimbo slipped 1.5 percent to 34.65 pesos in Mexico trading.

In January, Reuters reported that Grupo Bimbo was the top candidate to buy Canada Bread, after private equity firms KKR & Co and Bain Capital LLC, and U.S.-based Flowers Foods Inc - bowed out of the race.

Maple Leaf has sold parts of its businesses as it restructures under a multi-year plan. It has recently been upgrading its meat operations as it seeks to boost profits and better compete with rivals in the United States.

POSITIVE MOVE

Maple Leaf will use proceeds from the Canada Bread sale to repay debt and complete upgrades of its meat business before considering opportunities for growth, and returning capital to shareholders, Maple Leaf Chief Executive Michael McCain said in a conference call with analysts.

Bimbo, a family-owned and operated breadmaker, said it will finance the purchase with cash and by using long-term credit lines that it already has in place.

Responding to a question about whether Maple Leaf was for sale, McCain said it was committed to its meat business and saw growth potential in Canada and elsewhere.

The company has neither sought nor received inquiries from potential buyers of the meat business since Maple Leaf announced a review of its Canada Bread stake last October, McCain, Maple Leaf's biggest shareholder, said in an interview.

Selling Canada Bread is an "extremely positive" move and sets the stage for Maple Leaf to eventually buy back shares, said Brian Huen, managing partner of Red Sky Capital Management, a Maple Leaf shareholder.

Huen said he would not oppose a sale at the right price.

"Frankly, if someone's willing to come in and buy the protein business and pay C$20, C$21 (a share), I think they have a fiscal responsibility to sell it."

In December, Canada Bread announced a special dividend of $8 per share, netting Maple Leaf a roughly C$183 million windfall.

APPROVAL

The deal has been approved by the boards of both Grupo Bimbo and Canada Bread, and Maple Leaf has agreed to vote the shares it controls in favor of the deal.

The transaction still awaits regulatory anti-trust and foreign investment regulatory approvals.

"We don't expect any problems there," said Bimbo executive Luis Sampson in a conference call with analysts. "We've been doing a review and we expect that it's going to go through in a timely fashion so most of these transactions should happen in the second quarter."

Maple Leaf was advised by RBC Capital Markets and Centerview Partners LLC on the Canada Bread sale, while its subsidiary had engaged CIBC World Markets Inc to act as its financial adviser.

Bimbo said in a separate statement that it was advised by boutique firm Atlas Advisors, with legal advice from Torys.

Grupo Bimbo was founded in Mexico City in 1945 by Lorenzo Servitje. Its current Chief Executive Daniel Servitje is a descendant of the founder and the Servitje families own about 50 percent of the company's stock.

Canada Bread is one of two dominant Canadian bakers, along with food producer George Weston Ltd, parent of the Loblaw Cos Ltd grocery chain. In addition to bread sold under the Dempsters brand, Canada Bread sells other products under banners such as Ben's, POM and Sunmaid. ($1 = 1.1044 Canadian dollars) (Additional reporting by Elinor Comlay and Christine Murray in Mexico City; Editing by Bernadette Baum)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article