International food giants eye Canada’s Maple Leaf Foods

Maple Leaf Foods Inc. has emerged as a potential takeover target in the rapidly consolidating global food sector.

Sources familiar with Maple Leaf Foods, Canada's largest processor of meat and baked goods, said international food giants are circling the Toronto-based company as they scramble to lock up food sources for expanding emerging markets. The prize for many food buyers is meat, particularly pork, a valued commodity in China, which is struggling with outdated processing facilities and tainted meat scandals.

One interested Maple Leaf Foods buyer was Virginia-based Smithfield Foods Inc., the world's largest hog producer, which agreed in late May to be acquired for $4.7-billion (U.S.) by China's Shuanghui International Holdings Ltd. More recently, sources said, other U.S. and Asian companies have cast their eyes on the Toronto company, but it is unclear whether Maple Leaf Foods has entered any negotiations.

A spokeswoman for Maple Leaf Foods said the company does not comment on rumours or market speculation.

It is understood that a number of global food giants including U.S. food producers Kraft Foods Inc., Hormel Foods Corp. and Mexican baked goods company Grupo Bimbo are actively searching for acquisitions. It is believed that several Chinese buyers are also looking to acquire food producers.

Maple Leaf Foods stock price has risen steadily in recent days in apparent anticipation of a transaction. In trading Thursday on the Toronto Stock Exhange, it closed up 40 cents at $13.93 after nearly 1 million shares changed hands, the highest trading volume since March when Smithfields made a confidential offer.

Maple Leaf Foods stock is up nearly 20 per cent since the beginning of the year.

The run-up comes at a time when the company is coping with unexpected losses and rising costs related to an ambitious multiyear plan to modernize aging meat processing facilities.

The company is 33-per-cent owned by its chief operating officer Michael McCain and about 10-per-cent owned WestFace Capital, a Toronto hedge fund founded by shareholder activist Greg Boland. Most of Mr. McCain's personal wealth is invested in Maple Leaf Foods and sources said he has indicated an interest in selling at least some of his holdings following a recent divorce settlement.

Neither Mr. McCain or Mr. Boland were available to comment.

Smithfield said in a proxy statement filed Thursday with the U.S. Securities and Exchange Commission, that it made an offer to acquire an unidentified packaged meats producer on March 25. People familiar with the discussions said the target was the meat products division of Maple Leaf Foods. Smithfield said in the statement that its offer was rejected on April 10. Shortly after, the U.S. company entered takeover discussions with Shuanghui, which culminated in an announced agreement on May 29.

At the time of Smithfield's offer to Maple Leaf Foods, the Toronto company's stock was very active, rising to a peak of $13.96 a share on the Toronto Stock Exchange. Shortly after Maple Leaf Foods rejected the bid, the stock slumped below $12.50 a share.