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The son of a sea captain from the Nova Scotia fishing port of Lunenburg has taken Captain High Liner's fleet off the water.

For more than a decade, Henry Demone, president of High Liner Foods Inc., has been diversifying the historic fishing company's operations -- striving to cope with declining fish populations by moving into pasta making and seafood processing.

Earlier this week Mr. Demone took the final dramatic step -- selling the company's fish processing quotas and nine trawlers to a consortium headed by Halifax-based Clearwater Seafoods Ltd. for $65-million.

It's a move that will enable High Liner to now concentrate on unromantic tasks such as making and selling fish sticks and pasta dinners rather than having its ships battling stormy seas to bring home haddock and scallops from the depths of the North Atlantic.

The transaction leaves Clearwater, a company that began with founders John Risley and Colin MacDonald selling lobsters out of a truck on the Bedford Highway, as the major maritime fishing company.

It has nine plants and 2,000 employees, and it is striving to become larger.

At the same time High Liner, formerly National Sea Products Ltd., will be laying off at least 79 employees, most of them trawler fishermen, as Clearwater takes over the scallop and groundfish quotas and uses its own boats for harvesting.

Mr. Demone said pulling out of the fishing business was an emotional decision but the only one that made sense for High Liner, which is based in Lunenburg.

"This company has been involved in the fishing industry for more than a century and there are not many companies that can say that because this is a very volatile industry," he said in an interview. "Our sales are still more than 80-per-cent seafood," he added.

"We're just not going to catch it any more."

In recent years, High Liner's once proud fleet has been overshadowed by the company's push to sell processed food products in both Canada and the United States.

Instead of boasting about fish catches, High Liner employees were developing plans to push confetti fish sticks covered with brightly coloured batter and seafood nuggets to children.

In 1994, after a series of fishing reductions caused by the depletion of East Coast fish stocks, High Liner's fleet was hauling in 11,794 tonnes of cod, redfish, perch and other groundfish. Last year it caught only 6,572 tonnes. At the same time it was facing increased competition from Clearwater and Fishery Products International Ltd. of St. John's for its lucrative scallop business.

Mr. Demone said the deal will reduce the company's sales by about $38-million this year, but it also eliminates the $4-million-a-year cost of maintaining the fleet. The company was also faced with having to replace some its trawlers at a cost of more than $13-million a boat.

High Liner also needed to consolidate its efforts to sell food.

"The whole industry has changed. If you go back 20 years we had huge quotas of as much as 350 million pounds of fish. You could find out what the customer wanted and send the fleet out to catch that," he said. "Today, the customers are much larger and locally the fishery is much smaller so the idea that being vertically integrated is an advantage -- forget it."

Now High Liner will concentrate on taking pollock and cod blocks from foreign sources and converting them into fish dinners, and then selling them through major retailers such as Wal-Mart Stores Inc. and Costco Wholesale.

Getting on those big-store shelves in the United States isn't cheap. Mr. Demone told High Liner's annual meeting that the company paid retailers more than $3-million in the first quarter of this year to get its products placed on store shelves.

The Clearwater transaction has caused some consternation in Atlantic Canada. Some fishermen don't like the idea of Clearwater dominating the business of catching fish, and union leaders say the deal will reduce employment.

Last year, Clearwater set off a political storm in Newfoundland and Labrador in a bid to merge with FPI. The deal was eventually scuttled because of an unpopular plan to rationalize FPI's aging assets. Last summer, as Clearwater put forward a public offering through an income fund, there were rumours that the company was making a bid for High Liner.

The plum acquisition in the most recent deal for Clearwater appears to be the High Liner scallop quota, which last year was about 16 per cent of the Canadian catch. According to analyst Jonathan Norwood of Beacon Securities in Halifax, Clearwater now holds about 52 per cent of the scallop quota.

Mr. Norwood said High Liner has told the investment community that it wants to get out of the fishing business. Last year, it put its major primary processing plant at Arnold's Cove, Nfld., up for sale, but no buyer came forward.

"I don't think they were a large enough company to compete on both sides of that business -- both the primary processing and the packaged goods sector," Mr. Norwood said in an interview. "You need to maintain a fleet of vessels and primary processing plants, and you need to continue to invest. At the same time, on the packaged foods side, you need a lot of money to grow that business and I think the two were pulling at each other."

Clearwater co-founder Mr. MacDonald, who is also chief executive officer, said the company is facing stiff competition from low-cost fish processors in countries such as China that are shipping their fish into North American markets.

Mr. MacDonald said Clearwater bought up the High Liner assets to expand its fishing operations. He said the company, which purchased two large scallop trawlers for about $26-million in the past year, has the work force and the boats to catch and process all the quota it has purchased.

"The key to our strategy has been ownership of resources. We need the size to invest in technology," he said.

Clearwater has already worked out a deal with unidentified Nova Scotia companies to take the nine High Liner vessels. The company will provide $13-million in financing to the companies to purchase the fishing assets.

Mr. MacDonald said the company will continue to expand to keep up with the demands of a sophisticated food processing industry that wants a consistent supply of high-quality products.

"The consumer knows what is good and bad in seafood," Mr. MacDonald said. "You've seen this happen in the chicken industry, you've seen it happen in the beef industry and now it's happening in the seafood industry . . . they're demanding consistency in supply and price and you can't invest in the technology, harvesting processing and marketing sides to achieve that unless you have scale."

Fish facts

Clearwater's purchase of High Liner's fish processing quotas and trawlers leaves Clearwater as the major maritime fishing company.


History: Clearwater Seafoods Ltd. was established in 1976 by entrepreneurs John Risley and Colin MacDonald, who began selling lobsters from a truck on the Bedford Highway in suburban Halifax. Clearwater has grown from one truck to nine processing plants on the east coast employing more than 2,000 people. It has concentrated on shellfish - scallop, lobster and clam enterprises. The plum acquisition in the deal for Clearwater appears to be the High Liner scallop quota.

Financial performance: In the fourth quarter of 2002, Clearwater had a profit of $21.2-million or 45 cents a share on sales of $96.3-million. The company created a publicly traded income fund July 30 of last year. Its first-quarter results have not yet been released.


History: High Liner Foods Inc. traces its roots to a fishing enterprise established in Lunenburg in 1899. A high liner is traditionally the boat in the fleet that catches the most fish. In 1988, before the cod fishing moratoriums, National Sea Products (which was renamed High Liner in the mid 1990s) employed 6,330 people on the water and in processing plants. Its fleet caught almost 104,000 tonnes of fish. In 2002, it employed 1,274 people - mostly in food packaging operations - and caught 6,572 tonnes of fish.

Financial performance: Last year, High Liner had a profit of $10.2-million or 93 cents a share on sales of $324,458,000. For the first quarter of this year it had profit of $3.9-million or 36 cents a share, compared with $3.4-million or 32 cents for the year-earlier period.


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