(Corrects last paragraph to show that Canada Bread's special
committee, not Maple Leaf, hired CIBC)
By Euan Rocha and Rod Nickel
TORONTO/WINNIPEG, Manitoba Oct 21 Canadian food
processor Maple Leaf Foods said on Monday it may sell
its controlling stake in Canada Bread Company as it
determines whether to exit the bakery business and focus on meat
Toronto-based Maple Leaf said it has recently completed a
comprehensive review of opportunities to accelerate profitable
growth across its bakery business. But before committing
resources, it decided to explore strategic alternatives,
including a sale of its 90 percent stake in Canada Bread.
"This is about a great business with a good view to help it
to grow profitably over the next four or five years, but because
we're at a crossroads ... we felt it was prudent to consider the
alternatives," Maple Leaf Chief Executive Michael McCain said in
Maple Leaf's shares jumped 10 percent to C$14.63 by
mid-afternoon on the Toronto Stock Exchange, while those of
Canada Bread rose 6.4 percent to C$65.15.
In the event of a sale of the business, Maple Leaf said it
would consider using the proceeds to pay down debt, reinvest in
its business and return capital to shareholders.
The potential sale of its Canada Bread interest, following a
deal in August to sell its rendering business, does not signal
that Maple Leaf itself is for sale, McCain said.
Maple Leaf has the choice to operate an integrated business
that includes the bakery, or become a protein-focused company,
In response to an analyst's question on a conference call
about whether Maple Leaf is signaling it is for sale, he said
"the answer ... is a very unequivocal 'no.'"
The company cautioned that there could be no assurance that
a sale of the business will occur. Maple Leaf expects to
conclude the strategic alternatives process in early 2014.
In a separate statement, Canada Bread said it has appointed
a special committee comprised of its independent directors to
ensure that all of its shareholders are treated fairly and that
the company's interests are taken into account.
Canada Bread, which has a market capitalization of roughly
C$1.66 billion ($1.61 billion), employs some 6,400 people in
operations spread across Canada, the United States and Britain.
It is one of two dominant Canadian bakers, along with food
producer George Weston Ltd, parent of the Loblaw Cos Ltd
grocery chain. To find a strategic buyer, Maple Leaf
would likely have to go outside Canada to avoid competition
concerns, McCain said, but he also noted possible interest from
private equity buyers in Canada and elsewhere.
For a foreign investor to buy Canada Bread, approval by the
Canadian government would be necessary.
Under the Investment Canada Act, the federal government has
powers to veto any foreign takeover of a Canadian asset or
company worth at least C$344 million if it deems such a deal
would not bring a "net benefit" to the country.
Canada Bread, in addition to bread sold under the Dempsters
brand, sells pasta and other products under banners such as
Olivieri, Ben's, POM and Sunmaid.
McCain has in recent years highlighted a consumer move away
from eating bread, driven by some popular diets, but said Monday
that such trends were not behind Maple Leaf's possible exit of
the bakery business. In fact, if the company holds onto its
Canada Bread stake, it is confident that through organic growth
and cost-cutting it can capitalize on new opportunities.
McCain said he was not under pressure from investors, which
include activist hedge fund West Face Capital, to look at a
Thomas Dea, a partner in West Face Capital, Maple Leaf's
second-largest shareholder after McCain, declined to comment.
Canada Bread, which recently opened a new bakery at
Hamilton, Ontario, had sales of nearly C$1.6 billion in 2012.
Those sales were the lowest in five years, although its net
earnings last year of C$71 million were the highest in three
years, according to the company's website.
Analyst Robert Gibson of Octagon Capital Corporation said it
would make more sense for Maple Leaf to reduce its Canada Bread
stake rather than sell it outright, but Maple Leaf Chief
Financial Officer Mike Vels said the company is looking to sell
all or none of its shares.
In August, Maple Leaf agreed to sell its profitable
rendering and biodiesel business, Rothsay, to Darling
International Inc for about C$645 million in cash.
Canada Bread's special committee has engaged CIBC World
Markets Inc to act as its financial adviser.
($1 = 1.0283 Canadian dollars)
(Reporting by Euan Rocha in Toronto and Sneha Banerjee in
Bangalore; Editing by Kirti Pandey, Maureen Bavdek and Richard