MIKE CASSESE
Maple Leaf Foods is confronting its new activist shareholder head-on, vowing to plow ahead with its business plan and not be broken up or sold.
The storied Canadian food processor pushed back on long-simmering pressure to deliver results for shareholders, insisting it will rejuvenate the company with its $1.3-billion modernization plan that includes consolidating plants and boosting efficiency at its facilities.
Chief executive Michael McCain planted himself firmly on the hot seat by promising aggressive financial targets, particularly his goal of producing double-digit earnings growth in each of the next five years.
"It's very clear that we have a plan today that will maximize shareholder value," Mr. McCain said in an interview.
"All shareholders are forthcoming in their advice to management and the board, and the board has considered all shareholders' points of view en route to making their decision," he said. "We were very careful in assessing alternatives."
One option that's not on the table is an outright sale of the company, he added.
The company's announcement comes about two months after long-time shareholder Ontario Teachers' Pension Plan sold nearly one-third of its 36-per-cent stake in Maple Leaf to Toronto hedge fund West Face Capital Inc., and said it was open to selling the remainder.
West Face is known for pushing companies to improve their performance and share price. Meanwhile, Teachers' made it clear that it is not happy with some decisions at Maple Leaf. The pension fund has come out swinging in recent months against a poison pill that Maple Leaf instituted this summer, after it became known that Teachers' was considering selling its stake.
Teachers' has said that the pill, which is designed to give Maple Leaf's board time to consider any proposed acquisition of 20 per cent or more of the company's stock, blocks the pension fund from exercising its rights.
Mr. McCain and his family control about 32 per cent of Maple Leaf through McCain Capital Corp.
The company said its double-digit earnings growth target should boost earnings before interest taxes depreciation and amortization (EBITDA) margin by more than 75 per cent, from the current level of 7 per cent to 12.5 per cent in 2015.
Maple Leaf appears confident in its expectations, because it provided definitive goals rather than a range for improvement, noted Bank of Montreal analyst Kenneth Zaslow. "The key question is what is the likelihood of success of the long overdue restructuring plan, in light of the current operating environment (i.e., high protein/wheat prices, weak consumer)," he wrote in a note to clients.
While targets and details have been added, it's still the same basic plan that the company has been telling analysts and investors about for some time, noted National Bank analyst Jim Durran. "From a fundamental perspective, this leaves Maple Leaf as a 'show-me' story," he said.
Mr. Durran added that he awaits a probable response from West Face Capital, which is unlikely to be supportive of this plan given the capital investment required.
West Face declined comment, while a spokeswoman for Teachers' said the pension fund is reviewing Maple Leaf's plan but has no comment.
Mr. McCain said that Maple Leaf's board considered a range of alternatives, including splitting the bakery and protein businesses. "Unfortunately, the reality is that that impairs value, it doesn't create value," he said.
The CEO, who noted that in the last six years or so the market share of U.S. food processors in Canada doubled from four to eight per cent, fought back against complaints that the detailed plan was overdue. The board approved its strategic direction last year and approved a more comprehensive version last month, he said.
Maple Leaf began restructuring in 2007, he said, after it became clear that the stronger Canadian dollar was inflicting real damage. In the midst of that, a listeriosis bacteria outbreak in 2008 killed 22 people, and was linked to a Maple Leaf plant in Toronto.
"We would have been having this conversation two years ago had the product recall not occurred, but it did occur and that set us back a couple of years," he said. "We took decisions that had very material short-term negative financial consequences, but we still think they were the right decisions, they were the responsible decisions, and here we are now two years later back on our game, back on our strategy, and focused on addressing the structural issues that were presented to us by the currency shift."