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How an activist investor shook up a Canadian brand Add to ...

McCain, who had pocketed nearly $20 million in compensation in the three years leading up to 2010, was largely insulated from a shareholder backlash because of his family’s unique shareholder partnership with Teachers’. Further securing his grip was a board that included some of his father Wallace’s closest friends, many of them with shared roots in New Brunswick, home to the McCain french-fry empire. The board’s lead director was Purdy Crawford, now 80, whose status as dean of the Street was illustrated when he became a one-man task force on the asset-backed commercial paper meltdown in 2007. His friendship with Wallace dated back to college days. Joining him on the board are such pillars of the establishment as Geoff Beattie, CEO of the Thomson family’s Woodbridge Co. Ltd. (which owns The Globe and Mail), and James Hankinson, former president of Canadian Pacific Ltd. Closely knit, influential and deeply connected, the board was untouchable.

Or so it appeared until the day in 2010 that the company unveiled a sweeping $1.3-billion strategy focused on modernizing its sprawling network of meat-processing facilities. The hefty price tag was equivalent to 84% of Maple Leaf’s total stock market value. After standing mute since 2005 while the company’s stock price swooned 40%, investors balked. Maple Leaf had already spent hundreds of millions buying companies and modernizing facilities, yet its margins were still prosciutto-thin. “Shareholders had lost faith in the company,” Boland declares.

But there was little frustrated investors could change so long as Teachers’ continued to back the McCain family. The pension plan had handed effective control of Maple Leaf to the McCains under an agreement that tied its 35% stake to the McCain family, which owned a 30% interest. The agreement gave the McCains the right to nominate more directors, assuring the family control of the board.

By 2010, however, the bond with Teachers’ was unravelling. A new pair of managers at the fund, Bill Royan and Wayne Kozun, had been given responsibility for the Maple Leaf investment. According to insiders, the two were adamant that the planned restructuring had to be more thoroughly analyzed before it was approved. When the recommendations fell on deaf ears, Teachers’ announced it was pulling out of the agreement with the McCains. The move put the pension plan in a ticklish position. If it went public with its complaints or launched a proxy battle, it would be challenging conduct that it had tacitly approved for nearly 15 years.

solution to the sticky situation arrived in the summer of 2010 when Greg Boland paid a visit to Teachers’ offices. The investor had had his eyes trained on Maple Leaf’s limp stock for nearly a decade. What he saw in the widening delta between the pension plan and the company was an opportunity to pull the latter out of its slump. If Teachers’ sold its stake, the McCain family would lose control and have little choice but to be more responsive.

By August, Teachers’ was so desperate to extricate itself that it sold a third of its stake—10% of Maple Leaf Foods’ shares—to West Face. In a stinging rebuke of the company, the fund sold at a 9% discount to the market price. For $113 million or $8.25 a share, Boland placed a maverick bet on a stock that the big money was fleeing.

McCain and his board did not see that the ground was shifting. Their first reaction, according to people close to the board, was to dismiss their new investor as a short-term opportunist who wanted to take advantage of turmoil to squeeze out a quick profit. Maple Leaf had a multiyear turnaround strategy in place; one investor was not going to thwart what they believed was in the long-term interests of the company.

Today, McCain offers a phlegmatic assessment of his rocky early days with Boland: “What’s interesting is that first impressions are so often wrong: Activist shareholder comes in and just wants to come and flip it for a fast buck.”

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