Teachers' sells out of Maple Leaf

The battle of wills between Maple Leaf and its major investor, started earlier this summer. Teachers has long been dissatisfied with the company’s attempts to boost its stock price, and balked at Maple Leaf’s adoption in June of a shareholder rights plan — a plan intended to stymie any takeover plans by other companies.

Financial Post
November 22, 2010

Teachers' sells out of Maple Leaf
Karen Mazurkewich

Maple_Leaf_Foods.jpg

Maple Leaf Foods processing plant.

Shareholders of Maple Leaf Foods Inc. could take a hit Wednesday morning after the Ontario Teachers Pension Plan announced it has sold its remaining stake in the company at a steep 17% discount.

The sale ends a long relationship between the meat packer and the pension fund that descended into acrimony in recent months.

While Maple Leaf shareholders could cheer the added liquidity for the lightly traded stock, they will have to deal with a short-term flood of shares being sold at far less than where they have been trading in recent months.

BMO Capital Markets and TD Securities will pay $362.4-million for the stake, at $10.50 a share, in a bought deal. The underwriters originally announced they would buy just 15% of the company, but increased the deal to the full 25% just hours later.

Maple Leaf shares where halted at $12.70 before the deal was announced and did not resume trading. With average six-month daily trading volume of only 135,508 shares, Teachers would not have been able to sell their stake into the open market with creating a massive overhang on the stock for several months.

The battle of wills between Maple Leaf and its major investor, started earlier this summer. Teachers has long been dissatisfied with the company’s attempts to boost its stock price, and balked at Maple Leaf’s adoption in June of a shareholder rights plan — a plan intended to stymie any takeover plans by other companies.

Teachers, which once owned a 36% stake in Maple Leaf, also objected to plans by the McCain family to spend $1.3-billion restructuring and modernizing Maple Leaf’s food processing plants in order to increase the number of ready-made products and reduce its traditional pork and poultry operations. In protest, Teachers sold a 10% stake in the company to the Canadian hedge fund West Face Capital Inc. at an 8.3% discount in August.

In October, temperatures between the pension fund and food processing firm rose again when two directors from Teachers resigned from the Maple Leaf board after raising further questions over the company’s future. According to a statement from Maple Leaf, the directors requested amendments to the board meeting minutes to reflect their concerns over the restructuring strategy. Teachers had agreed to Mr. McCain’s “value-creation” plans but their support was conditional. They expected Maple Leaf to review other options, including the sale of a rendering plant.

Despite objections from Teachers, Maple Leaf Foods has forged ahead with its ambitious restructuring plans. It sold its Ontario pork processing business for $20-million last week, and closed a prepared meats facility in Nova Scotia. The reorganization might be behind the latest stock dump by Teachers.

Maple Leaf’s stock has never fully recovered from the contaminated meat scare that left 22 people dead in 2008, and forced it to recall 23 products from grocery shelves. The listeria outbreak, one of the worst ever in Canada, resulted in a 50% drop in packaged meat sales for the company.

More recently, rising commodity costs, which impacts everything from flour to pork and chicken, plus a strong Canadian dollar, has forced Maple Leaf to make its largest cost reduction effort ever.

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