Maple Leaf Foods board under fire from investment company

“After being rebuffed on several occasions when we have raised these concerns with management and the board of directors, we have concluded that the board needs to hear a strong message from shareholders that the independence and governance practices of Maple Leaf do not satisfy their expectations or today’s standards of good corporate governance.”

The Kitchener-Waterloo Record
December 3, 2010

Maple Leaf Foods board under fire from investment company
Andrew Flynn

TORONTO – An investment company that owns about 10 per cent of Maple Leaf Foods Inc. has called for a special meeting of the company’s shareholders to hear its demands for changes to the food processor’s board of directors.

The move by West Face Capital, an activist hedge fund known for cracking down on the operating costs of companies, is a challenge to the food and bakery company’s current directors — which include Wallace McCain, the controlling shareholder and a co-founder of the McCain frozen-food empire.

It follows a major shakeup in ownership of Maple Leaf stock last week when the Ontario Teachers Pension Plan Board decided to sell its entire 25 per cent stake in Maple Leaf at a discount.

With Teachers out of the picture, West face is unhappy with the composition of the current board, which authorized a billion-dollar plan to reorganize the company, which was hard hit by a deadly Listeria outbreak at one of its plants in 2008.

Under the plan, the company aims to reduce costs and improve profit as it grapples with weaker sales, rising raw material prices and the high Canadian dollar, which makes its exports more expensive to foreign buyers.

Maple Leaf has already sold a southern Ontario pork plant and is shutting down a Nova Scotia meat plant under its planned restructuring.

It owns the former J.M. Schneider meat processing plant in Kitchener and poultry processing plants in New Hamburg and Ayr.

Teachers had already expressed its displeasure in the restructuring — two of its directors stepped down from the Maple Leaf board in October and it had also opposed Maple Leaf’s plan to bring in a so-called “poison pill” defence to thwart any potential hostile takeover.

It sold the 10 per cent stake in the food processor to Toronto-based West Face in August at a significant discount, and the Hedge Fund is now using that muscle to ask for changes.

“The deficiencies of Maple Leaf in critical areas such as board independence and corporate governance are well known to its shareholders and the investment community at large,” West Face partner Thomas Dea said in a statement.

“After being rebuffed on several occasions when we have raised these concerns with management and the board of directors, we have concluded that the board needs to hear a strong message from shareholders that the independence and governance practices of Maple Leaf do not satisfy their expectations or today’s standards of good corporate governance.”

A proxy battle such as this launched by West Face is rare because most activist investors manage to get the company on side with their concerns with behind the scene talks before taking the battle public. In this case, the investor has been pressing for asset sales and other moves to get the food company’s shares moving higher.

resolutions, among which are demands that:

•The board be reduced to nine members from the current 12

•At least two-thirds of directors are independent

•The board’s committees be made up of independents

•An outside search firm find suitable directors

•The company adopt a “say on pay” policy under which shareholders get input into executive compensation.

Maple Leaf, which is also Canada’s largest baker through its Canada Bread subsidiary, employs about 23,500 people at operations across Canada, the U.S., the U.K. and Asia.

Its well-known brands include Maple Leaf and Burns cold cuts and Dempsters breads. The company was formed in the early 1990s from the merger of meat processor Canada Packers and baker Maple Leaf Mills.

It was no secret that Teachers was rethinking its position at Maple Leaf Foods — a company that it had backed since it joined the family of Wallace McCain to buy the company in 1995.

The pension plan announced in July 2009 that it had notified McCain Capital Corp. that it would terminate the agreement between the family company and Teachers, effective at the end of June 2010.

Shares in Maple Leaf closed up 44 cents or four per cent at $11.62 in Friday trading on the Toronto Stock Exchange.

The Canadian Press

http://kitchenerwaterloorecord.ca/Business/article/824698


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