East Coast fishery giants locked in a standoff

In Canada's Atlantic waters, two big fish are circling each other in a standoff that will determine the future shape of the region's oldest industry.

At 63, Nova Scotia's John Risley is a weathered warrior who has battled his way to an empire based on the traditional fishery – going out in boats and catching wild things.

At 47, New Brunswick's Glenn Cooke is a younger acquisitor who has been consolidating the growing industry of farming fish inside big cages.

Now Mr. Cooke wants to net Mr. Risley's Clearwater Seafoods Inc. to create a Canadian champion in catching and farming – a trophy that would propel him towards global sales of more than $1-billion a year.

The problem is Mr. Risley isn't ready to roll over yet – although he leaves the door open for a deal.

And while Mr. Cooke says he is willing to be patient, timidity goes against his grain. "Our thinking is always do things fast. We see the synergies and our competitors out there aren't wasting their time," he says.

It means two tycoons who are the most aggressive, most impatient, most alike in aspiration of any in the Maritimes are facing off. Lacking college degrees or diplomas, they were both outsiders who crashed through the door of the East Coast establishment.

The current bid would value Clearwater, a worldwide shellfish supplier, at less than $100-million, with another $225-million in debt – small stuff in the world of takeovers.

But the two firms, Clearwater and Cooke Aquaculture Inc., carry outsized importance as employers and customers in the small centres of Atlantic Canada. They must succeed for these places to survive.

For the past two months they have been eyeing each other, since Cooke Aquaculture approached the Clearwater board with a proposed $3.50 a unit bid for what was then still a income trust – it converted to a corporation last week. The board of trustees recently rejected that offer as inadequate, and insiders have been soaking up convertible debentures and units on the market.

That sent Mr. Cooke back to the drawing board to figure out his next move – which could be a formal bid to buy out the public shareholders.

Yet in the tone of conversation, this is the most polite hostile takeover battle around. In fact, each man is loath to use the words "hostile" because they are so willing to talk to each other.

Each sees the other as a mirror image of himself at a different age, and there is an undertow of pride: Losing is not in either's vocabulary.

"I remember when I was his age, it was damn the torpedoes," says Mr. Risley, who insists that he has mellowed – a word never before associated with him or brother-in-law Colin MacDonald, who together started out selling lobsters out of a truck in Halifax more than 35 years ago.

Mr. Cooke, a marine mechanic's son from Blacks Harbour, N.B., says he understands that for the two major shareholders, it is as much about pride as money. Although both have diversified their investments, Clearwater was "their first baby."

"It is not a hate relationship. We understand their dream – we run a bigger dream," he says.

Both Mr. Risley and Mr. Cooke acknowledge the combined company would be much more sustainable than either on its own. While the two firms harvest fish in different ways, they could combine processing, marketing, management and sales to achieve huge synergies.

Cooke Aquaculture, whose core salmon farming drives a $570-million a year business, has a North American marketing presence but could ride on Clearwater's global activities. Clearwater, although a smaller firm with sales of $330-million, has 30 people in sales in China who could help Mr. Cooke gain access to a huge market, while benefiting from Cooke's U.S. distribution.

The dream for Mr. Risley began 45 years ago, when, as a university dropout, he tried a real estate venture with disastrous results, before in the 1970s luring Mr. MacDonald into the idea of selling lobsters.

In time, the two of them consolidated a large part of the Nova Scotia fishing business, accumulating valuable licenses, quotas and a modern fleet.

They survived the collapse of the Atlantic fishery, and became major purveyors of lobsters and scallops around the world.

The combative Mr. Risley loves the art of the deal, and at one point launched a bid for Newfoundland and Labrador fish giant FPI Ltd. That adventure was ultimately unsuccessful after a raucous tussle with the provincial government.

It had been the only hostile bid in the East Coast fishery – until now. "How come I'm in the midst of both of them?" Mr. Risley says, laughing.

In recent years, the two founders of Clearwater have stepped back from daily management, and are involved in a Caribbean cable and Internet provider and Omega-3 fish-oil supplier Ocean Nutrition of Halifax.

Clearwater has been on a roller coaster triggered by the high Canadian dollar, the financial meltdown, and the income trust debacle. However, the company's fortunes have improved recently under new leadership.

Meanwhile, Mr. Cooke, who also failed in his first venture, has been quietly building a family powerhouse over the past 25 years. He had made dozens of little acquisitions in fish farming, but his major coup was snagging the Heritage fish farming division of George Weston Ltd. in 2005, which doubled his company's size overnight.

He now yearns for diversification beyond Canada and salmon farming, while continuing to build his base. In the past year, he lost a bid for an Australian company, but acquired a big sea bass and sea bream business in Spain. He also owns a salmon farming operation in Chile. Both offshore stakes will be bases for international growth.

But the best fit of all would be Clearwater. Even though the wild fishery is mature and not likely to grow at the same rate as farming, the Nova Scotia firm has valuable licenses and quotas in sustainable species and areas. It also has two major owners in their early 60s who do not have readily apparent plans for succession.

Analyst Michael Mills of Beacon Securities of Halifax sees a 30-per-cent chance that Mr. Cooke will come through with a formal bid. That could win favour among public holders, but the two founders and their allies have large stakes.

Mr. Mills also rates a 25 per cent chance that the two sides will make peace, with Mr. Cooke coming aboard as a minority shareholder and board member.

But Mr. Mills likes another option – that "if common sense and business interests were to trump emotion," a privatization of Clearwater with the two sides as partners "would be the best situation for all parties involved."

Mr. Cooke says he has been thwarted this time by the board's opinion, but he is not necessarily walking way. The next step could be a formal public offer that might be truly hostile. "We hope we don't go that far," he says. "We don't see those guys as enemies, we just would like to see a method to get to the end."

Mr. Risley says he would still like to have Cooke Aquaculture as a minority shareholder, and he would not rule out a merger – but wants to take some time to work through the details.

That may be too long for Mr. Cooke who wants to move right away on the synergies to take on ever bigger global rivals. After all, it is not his nature to stand still. "Growth is in the blood and what gives us thrills is to build something."

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How they measure up

Cooke Aquaculture Inc., Blacks Harbour, N.B.

Founded: 1985

Owned: Glenn Cooke and family

Sales: $570-million a year

Profits: Has made money every year

Employees: 3,000

Factoid: Sells 115 million pounds of Atlantic salmon and 35 million pounds of trout each year

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Clearwater Seafoods Inc., Bedford, N.S.

Founded: 1976

Owned: 58 per cent owned by John Risley and Colin MacDonald interests; 11 per cent by Cooke Aquaculture; amounts may be diluted by convertible debentures

Sales: $330-million a year

Profits: Net loss of $7.5-million last year; returned to profit this year

Employees: 1,200

Factoid: Exports 85 per cent of its production of lobster, crab, scallop and shrimp