Maple Leaf FoodsFred Lum/The Globe and Mail
The McCain family is facing a fresh assault on its control of one of Canada's largest food companies after its long-time partner in the business sold a major stake to a Bay Street investor with a penchant for shaking up slumbering companies.
Ontario Teachers Pension Plan disclosed Tuesday that it divested nearly one-third of its 36 per cent stake in Maple Leaf Foods Inc. to Toronto investment firm West Face Capital Inc. and said it was open to selling the remainder.
The move, along with the recent end of a shareholders' agreement between the McCains and Teachers, marks the unravelling of a tight 15-year partnership between one of Atlantic Canada's most potent business dynasties and the massive Ontario pension fund. The two have collectively controlled Maple Leaf since Teachers gave financial backing in 1995 to Wallace McCain for a $1-billion takeover of Maple Leaf, which sells products like Shopsy's hot dogs, Dempster's bread and Olivieri pasta and had sales of $5.2-billion last year.
But sources say Teachers executives ran out of patience after a long string of disappointing financial results, poor performance from the share price and high-profile stumbles like the 2008 outbreak of listeriosis bacteria that killed 22 people and was linked to a Maple Leaf plant in Toronto.
According to people familiar with discussions, Teachers opted to sever its agreement with the family last summer after a falling out with the company over a strategy to spend heavily to modernize its operations and shift away from commodity-type products, such as pork and poultry, towards more value-added products, such as ready-made meals and foods. Teachers grew increasingly frustrated with the plan, which faced a number of delays and setbacks, including the rising Canadian dollar and the listeriosis problem.
As the economic environment worsened, sources said, Teachers urged the company to streamline and sell some of its operations, but were opposed by Maple Leaf chief executive officer Michael McCain, who believed that the ambitious investments in new facilities were the best long-term hope for a company competing with more efficient U.S. suppliers. That approach was backed by the company's directors.
But the arrival of West Face has the potential to shake up the boardroom. West Face's founder, Greg Boland, has made a name for himself by agitating for restructuring, asset sales or management changes at a number of poorly-performing companies, including Petro Canada, Stelco Inc. and CanWest Global Communications Corp., whose broadcasting and publishing assets were recently sold to an array of buyers after the company filed for creditor protection.
Mr. Boland's firm bought from Teachers a 10 per cent stake in Maple Leaf, as well as securities that would allow it to raise that stake to 11.4 per cent. That is enough to request a shareholders' meeting if the firm wishes to propose an alternative business plan or a new slate of directors.
The McCain family controls the largest equity stake in Maple Leaf, about 32 per cent, though without Teachers' help that is no longer enough to ensure control of the company.
A spokeswoman for Maple Leaf declined to comment about Teachers' sale. Mr. Boland also declined comment.
In a statement, Neil Petroff, Teachers' executive vice-president of investments, said that "while we have been a long-term and supportive investor" of Maple Foods, "this sale opportunity was in the best interests of the fund and our members." By selling part of its holdings in Maple Leaf, the pension fund is retreating from a stock that has fallen about 45 per cent in the past five years and is essentially unchanged from where it was 10 years ago.
It is understood that Teachers initially sought to sell its entire stake, but the only overtures it received involved deeply discounts to the company's stock price. Neither Teachers or West Face would discuss the purchase price for the stock sale.
Shortly before Teachers formally ended the shareholders' agreement on June 30, the board of Maple Leaf Foods formed a special committee of directors, led by director James Hankinson, a former CEO of Ontario Power Corp.
People familiar with board said that the committee is conducting a broad review of the company's business to review such strategic alternatives as asset sales or management shifts. It is understood that the committee has hired the law firm Goodmans LLP and Bank of Montreal to assist the review.
The turmoil comes at a difficult time for the family. Company chairman Wallace McCain, 80, was recently diagnosed with pancreatic cancer and is undergoing treatment.