Maple Leaf Foods Inc.’s long-awaited sale of its bakery division to Mexico’s Grupo Bimbo SAB ushers in a new era for Canada’s largest food processor and could set the stage for the sale of the entire company.
Michael McCain, Maple Leaf chief executive officer and its biggest shareholder, said the $1.8-billion sale of the 90-per-cent owned Canada Bread Co. Ltd. will allow it to pay off debt and focus on completing the five-year restructuring of its remaining processed meats business.
The Globe and Mail reported last year international food giants were circling Maple Leaf Foods and all its divisions, including the core meat operations, which could be sold after the meat restructuring is completed next year.
Mr. McCain said on Wednesday Maple Leaf Foods did not rule out a possible sale of the entire company, but he said there were no “material discussions” under way.
“We have always had a philosophy that we would always entertain discussions of anything that would provide potential shareholder value greater than the net present value of what we think we can do with the business,” Mr. McCain said on a conference call with analysts on Wednesday.
“None of us on the management team or the board have ever said never ever ever ever ever. And it wouldn’t be responsible or appropriate to take that kind of a position. I’ve been very clear on that internally and externally for 20 years.”
Maple Leaf Foods, whose brands include Shopsy’s and Schneiders prepared meats, is nearing the end of a five-year, $575-million restructuring in which it has closed old plants, opened new ones and streamlined its distribution system. The push to update its operations began after 22 people died of listeriosis poisoning after eating meat from one of its Toronto plants. Maple Leaf has recently also sold its Olivieri pasta business, a meat rendering company and a turkey farming operation.
Mr. McCain owns 33-per-cent of Maple Leaf Foods’ shares. Activist investor West Face Capital owns about 10 per cent.
Canada Bread’s brands include Dempster’s, Sunshine and Villagio, as well as a line of frozen baked goods. Bimbo’s brands include Sara Lee and Earth Grains. Sales of Canada Bread’s frozen food have fallen by almost 5 per cent over the past three years, while fresh goods have slipped by almost 2 per cent.
The $72-per-share price is slightly higher than Canada Bread’s most recent close of $67.26 on the Toronto Stock Exchange and 31-per-cent higher than when the possible sale was announced in October.
Canada Bread employs 5,400 people in Canada, the United States and Britain, and had 2013 estimated sales of $1.6-billion. It has 20 plants in Canada, three in the U.S. and two in Britain.
Mexico City-based Bimbo employs 126,000 people at 144 plants around the world. The deal gives it a foothold in the few markets in which it doesn’t already operate – Canada and Britain.
“Grupo Bimbo is an excellent company with strong values and a global leadership position, with little overlap in our geographic markets,” said Mr. McCain, who owns 33 per cent of Maple Leaf Foods. “This makes for a highly complementary fit with our bakery operations and is expected to provide exciting opportunities for Canada Bread employees, customers and other business partners.”
The agreement is subject to approval under Canada’s Competition Act and Investment Canada Act, in addition to U.S. laws.
“When we finish our transition, we’ll have amongst the lowest-cost supply chain network and assets in North America, so we are positioned for growth,” Mr. McCain said in an interview.
“We have spent seven years fundamentally rebuilding our business and we’re on the home stretch.”