Maple Leaf has two weeks to make move in proxy battle

“We have engaged with them for more than four months with no progress — period,” West Face partner Thomas Dea said in an interview. “We are providing a forum for shareholders … so they can say ‘We want independent directors to be free of personal, financial, and professional conflicts with the McCain family.’”

The Hamilton Spectator
December 8, 2010

Maple Leaf has two weeks to make move in proxy battle

TORONTO Maple Leaf Foods Inc. at a something of a crossroads — a deadly Listeria outbreak behind and ahead a fight with disgruntled shareholders that could complicate plans for a post-recessionary revamp of operations.

The Toronto-based food and bakery company’s latest move is a regulatory filing that defends the independence of the company’s lead director, Purdy Crawford.

It’s a response to challenges from an influential shareholder with concerns the company is overseen by a board that is too tight with management and the McCain family, which holds a controlling stake.

In the filing, Maple Leaf contends Crawford’s position complies with securities laws despite his relationships with its largest shareholder, McCain Capital Corp., company legal counsel Osler, Hoskin & Harcourt LLP and the McCain family.

According to Maple Leaf, Crawford “has no direct or indirect material relationship with the company which could, in the view of the company’s board of directors, be reasonably expected to interfere with the exercise of Mr. Crawford’s independent judgment, notwithstanding the presence of these relationships.”

Last week activist hedge fund West Face Capital, known for cracking down on the operating costs of companies, launched a proxy battle in an attempt to win over enough shareholders to get a mandate to oust some or all of the board.

What the hedge fund — which holds a 10 per cent stake in Maple Leaf — wants is a non-binding vote on whether some board members are independent enough from the McCains, who hold 31.5 per cent. It also wants the board reduced to nine members from the current 12 and the adoption of a “say on pay” policy.

“We have engaged with them for more than four months with no progress — period,” West Face partner Thomas Dea said in an interview. “We are providing a forum for shareholders … so they can say ‘We want independent directors to be free of personal, financial, and professional conflicts with the McCain family.’”

For its part, the company has maintained there’s no problem at the board level and that the proxy battle is “a costly and unnecessary process” and a distraction from its attempts to raise the $1.3 billion it needs to restructure. Maple Leaf has embarked on plans to shut down and consolidate its 24 processed meat operations — which could leave hundreds of employees jobless but improve profitability.

It says it has been in some discussion with West Face on a “board renewal” process to replace two directors, representatives of the Ontario Teachers’ Pension Plan who stepped down in October when the plan’s board decided to sell its entire 25 per cent stake in Maple Leaf at a discount.

A change in board membership would come at a crucial time and could mean a re-examination of the restructuring plans. A new board could also challenge the authority of the McCains, including Wallace McCain, Maple Leaf’s controlling shareholder and a co-founder of the McCain frozen-food empire.

CEO Michael McCain said the matter of corporate governance raised by West Face is a board matter, while his management team is focused on maximizing shareholder value.

Maple Leaf has 21 days to call the shareholder meeting to vote on the proposals, but the company has yet to decide whether or when a meeting will be held. It has until the end of the year to do so before shareholders can call one themselves.

Canada Bread, which is 89.9 per cent owned by Maple Leaf Foods, announced Feb. 17 it’s opening a $100-million, 375,000-square-foot bakery facility in Hamilton on 25 acres of land at the North Glanbrook Industrial Park, which will be renamed the Red Hill Industrial Park.

Construction is expected to begin June 2010, with the first of seven production lines starting up a year later. When at full production, the baking facility will employ about 300 jobs, in addition to 31 additional hourly jobs depending on the season.

In early November, Maple Leaf Foods sold the Burlington pork processing plant that could have brought hundreds more jobs to Hamilton. The plant was sold to an affiliate of Sun Capital Partners, Inc. for about $20 million.

In 2005, Maple Leaf tried to build a new factory in Hamilton to include the Burlington operation. The move would have meant hundreds of jobs, but was scuttled by neighbours.

The Canadian Press

With files from The Hamilton Spectator

http://www.thespec.com/news/business/article/298990--maple-leaf-has-two-weeks-to-make-move-in-proxy-battle


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