On the afternoon that Ontario Teachers’ Pension Plan launched its $220-million bought deal to unload the majority of its 25 per cent stake in Maple Leaf Foods Inc. , investors were so hungry for the stock that the deal was ultimately upsized to $362-million -- the value of Teachers’ entire position.
The closing stock price that day in November 2010: $12.70. And today? $10.90. Now, investors did get a break because they were able to buy into the big secondary offering at a deep 17 per cent discount, but even then they are still pretty much flat on their investment over a year later.
Better yet, the stock hasn’t closed higher than $12.70 since that day. Teachers got out at just the right time.
This isn’t to say that Maple Leaf may never recover. The company has unveiled a sweeping overhaul of its processing capabilities to increase efficiencies and cut costs. But reaping the benefits of doing so will certainly take time, and Teachers clearly didn’t want to wait around. By cashing out, the fund could take the money and invest elsewhere, hopefully earning a return better than nil.
Yet the pension fund would have to be smart with that money. Since the big bought deal on Nov. 23, 2010, the S&P/TSX Composite Index is down about 4 per cent -- which means Maple Leaf’s performance beats the market.
Still, investors will likely have to wait it out if they want to see substantial returns. Maple Leaf’s restructuring plan is a big one and will take time to play out. The overhaul includes jacking up prices to account for higher input costs -- last quarter the firm announced wheat prices used in its bakery products had gone up 27 per cent over the year prior -- and Maple Leaf is shifting its product focus to ‘on-trend categories. These are mostly healthier items such as Natural Selections lunch meat and Dempster’s rye bread.
The crux of the plan, though, is a $560-million investment to transform the company's processing capabilities. This initiative involves closing inefficient plants in places like Kitchener, Ontario, resulting in 1,200 job losses, and relocating operations to a brand new factory in Hamilton, Ontario and upgrading plants in Brampton, Ont., Winnipeg and Saskatoon.
There’s nobody who believes in the merits of this plan more than Michael McCain. In December, Maple Leaf announced that he has taken sole beneficial ownership of the 31 per cent stake that McCain Capital Corp. previously held. And after scooping some more shares from other sellers, Mr. McCain now owns 32.5 per cent of the company.
The second biggest shareholder is activist investor Greg Boland's West Face Capital, which holds 11.4 per cent, according to Capital IQ.
**Update: As one commenter pointed out, it should be mentioned that Teachers sold the first chunk of its stake to West Face at $8.25 per share back in July 2010, which was a 8.3 per cent discount to the $9 closing price that day. West Face bought 13.7-million shares, or 10 per cent of the company.