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How an activist investor shook up a Canadian brand Add to ...

Over the next six months, Maple Leaf’s embattled directors and executives got a lesson in the restorative power of allowing an activist inside the tent. Boland led his West Face team on what could be called a corporate colonoscopy. (“Apparently he likes them,” quips McCain.) To analyze whether the planned billion-dollar overhaul made sense, Boland and his team visited almost every meat processing facility, including—in a telling moment—a dusty crawl through some of the dungeon-like corners of the company’s century-old Schneider factory in Kitchener, Ontario. They interviewed hundreds of employees and analyzed years of supply-chain data.

It is unusual for management to yield so much information, even to a director, because it leaves them vulnerable to second-guessing. But the more Boland asked “excruciatingly penetrating questions,” the more McCain understood that his former adversary was an ally. “The last goddamned thing that I want is executing something that is flawed,” McCain says. “If he can illustrate that it is wrong or make it better, frankly, I win.” Most of all, McCain needed Boland’s approval of a restructuring plan to reassure other shareholders that he was still the right CEO for the company.

Neither Boland nor McCain will discuss in detail how the largest infrastructure project in the company’s history was altered as a result of the probe. But the $560-million overhaul that was announced in October, 2011, is obviously less ambitious than the $1.3-billion version McCain announced a year earlier. The new plan comes with the big human cost of 1,500 net job losses and the closure of eight plants and distribution centres, including the Schneider plant.

Perhaps the most surprising thing about the Maple Leaf announcement is that it was unveiled by McCain. Shareholders had grumbled for years about McCain’s rich take-home pay and poor performance. It seemed inevitable that the CEO would head for the exits after Boland gained influence on the board. Boland credits McCain’s survival to his flexibility: He listened, and he understood that he needed to demonstrate that his interests were aligned with shareholders’. “He really, really wants to do the right thing,” says Boland.

The right thing was announced last summer. As part of family estate changes in the wake of his father’s death in May, McCain parlayed his inheritance into a 30% stake in the company. “I’m all in,” McCain says with a trace of weariness. “I do so with a very significant level of personal confidence because I believe very deeply in the people and history of this company.”

It could be said that McCain is telegraphing his faith in something else: his newest director. He clearly regards Boland, his former adversary, as one of the company’s more important assets. It is a conversion that Boland hopes will send a message to other companies.

“We are making a good case to directors that activist shareholders no longer have to be seen as pariahs.”

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HOW WEST FACE WINS

Stelco West Face made a gutsy bet on the steelmaker, buying an 18% stake at $5.50 a share, issued as part of the company’s bankruptcy reorganization in 2004. West Face supported a restructuring on a bet that the stock would soar with recovering steel prices. Less than a year later, Stelco was acquired by U.S. Steel Corp. for $38.50 a share.

UTS Energy The oil sands producer’s stock price collapsed nearly 90% in 2008. But West Face calculated UTS had more than $6 a share in cash and asset value, and so bought a 15% stake, at less than $1 a share. West Face pushed Total SA to make a takeover offer. UTS exits at $3.60 a share.

Vector Aerospace When the maintenance company’s largest shareholder made a low-ball offer that would have given him a majority position, West Face saw opportunity and acquired a 19% stake at less than $7 a share. Betting that the sector was ripe for consolidation, West Face nudged the board to consider alternatives. The company was acquired in 2011 by European giant EADS for $13 a share.

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