Teachers give failing grade to Maple Leaf plan

One of the largest shareholders in Maple Leaf Foods Inc. is refusing to swallow the company’s plan to bring in a so-called “poison pill” defence to thwart any potential hostile takeover.

TORONTO — One of the largest shareholders in Maple Leaf Foods Inc. is refusing to swallow the company’s plan to bring in a so-called “poison pill” defence to thwart any potential hostile takeover.

Ontario Teachers’ Pension Plan, which is reportedly looking to sell its 35 per cent stake in the company, says it will vote against the plan adopted by Maple Leaf’s board of directors late Tuesday.

“We are considering all other options open to us with respect to challenging the adoption of this rights plan, which prevents us from exercising our legal rights as shareholders,” Neil Petroff, Teachers’ executive vice-president of investments said in a statement Wednesday.

“We are also considering all of our options with respect to our Maple Leaf shareholdings,” he added.

Toronto-based Maple Leaf said the plan would be triggered if an unwanted suitor sought to acquire 20 per cent or more of the company.

The plan would flood the market with new Maple Leaf shares and make a hostile takeover prohibitively more expensive for a would-be buyer.

Maple Leaf chief financial officer Michael Vels said the plan coincides with the expiry of an agreement between the company’s two largest shareholders, McCain Capital Corp. and the Ontario Teachers’ Pension Plan Board.

“It wasn’t put in place in the knowledge of or in advance of any transaction or change of shareholding that we’re aware of,” he said.

“(The board) considered it a smart and appropriate thing to do to put a plan in place that ensured the board of directors and the company would have the time to properly consider any proposal that came forward.”

Between them, the two blocks held voting control over the company. However, Teachers’ is reportedly looking to sell its 35 per cent stake in the company, valued last month at about $450 million, and ending its long-time partnership with the McCain family.

Teachers’ is converting its 11.7 million non-voting shares into the equivalent number of voting shares. It will also continue to own 10.3 million non-voting shares and warrants into 2.2 voting shares, giving it 30 per cent of voting shares, or 36 per cent on a partially-diluted basis.

The large pension fund has also entered into a voting agreement with another investor, Sixmoront Corp., which will be its voting partner.

The pension fund manager adds that it has also entered into an understanding with the food processing company about how Teachers would go about selling its stake on the market.

Vels said the agreement states that the company would be co-operative in the event that it, or one of the significant shareholders made a request for the company to help them in any divestiture of shareholdings.

“I don’t think I would read any more into it than that,” he said, adding the company wouldn’t be opposed to any transaction that was in its interests.

It’s possible another larger food company in Canada or outside the country could seek to buy the Teachers’ stake if it is put up for sale.

Bob Gibson, a retail analyst at Octagon Capital Corp., says international food conglomerates are most likely to make a play for Teachers’ stake in Maple Leaf.

“If you’re already doing the same thing somewhere else, you can bring your skills … (and) you can rationalize your various operations.”

Meanwhile, Maple Leaf, which has shrunk its international business and is focusing on the Canadian market, could be more adverse to a deal with an international player.

Gibson said Maple Leaf’s poison pill move will deter many potential large-scale investors.

“Will Maple Leaf view that as hostile? It’s putting another roadblock in your way,” he said. “Maple Leaf would just rather have a number of small institutional investors, as opposed to one major player with a bigger stake than them.”

Gibson said analysts are waiting to see how Teachers attempts to sell its shares, whether it be on the market or through a private placement. Meanwhile, shares in Maple Leaf continue to fall and the value of Teachers’ 35 per cent stake now hovers closer to $300 million, compared with the $450 million valuation last month, he added.

Maple Leaf shares were off 21 cents or 2.35 per cent at $8.73 in light volume trading Wednesday on the Toronto Stock Exchange.

The company said the rights plan was devised by a special committee comprised of seven directors independent of both MCC and Teachers’.

“In that regard, the special committee recommended to the board of directors that the rights plan be adopted,” Maple Leaf said.

The company said the rights plan, which is effective immediately, is designed to allow the board of directors of Maple Leaf and its shareholders sufficient time to consider fully any transaction involving the acquisition or proposed acquisition of 20 per cent or more of the company’s outstanding voting common shares.

It would also give them time to consider any alternatives and to ensure the fair treatment of shareholders should any such transaction be initiated.

Under the plan, one right was issued with respect to each voting common share and each non-voting common share of Maple Leaf as of the close of business on June 29, 2010. If triggered, the plan would entitle a rights holder, other than the acquiring person and related persons, to purchase voting common shares or non-voting common shares at a 50 per cent discount to the market price at the time.

Maple Leaf said the TSX had advised the company that it has accepted the rights plan for filing subject to the condition that shareholder approval is obtained within six months of its adoption. If approved, the plan will have a three-year term.

Maple Leaf is a leading food processing company, with 23,500 people at its operations across Canada and in the United States, the United Kingdom, and Asia. It had sales of $5.2 billion in 2009.

The company makes processed meats under the Maple Leaf and Burns brands and also is Canada’s largest baker through its Canada Bread subsidiary. Other brands include Schneiders, Shopsy’s, Swift and Mitchell’s as well as Dempster’s.

Maple Leaf (TSX:MFI) has endured what CEO Michael McCain has called a “constant stream of challenges” over the past four years, which started when the Canadian dollar reached parity with the U.S. greenback and worsened with a Listeria outbreak involving the company’s products.

The outbreak and subsequent product recall pushed Maple Leaf’s packaged meat sales down by as much as 50 per cent, although they have since recovered.

In May, Maple Leaf announced that it was putting its Ontario pork processing business up for sale again after a failed attempt to unload the facility at the height of the credit crunch.

The company said it was seeing “renewed interest from potential purchasers” for the Burlington, Ont.-based operation, one of the largest pork processing facilities in Canada.

The sale would mark the last major hurdle in Maple Leaf’s restructuring of its protein business, which it began in 2007 with the goal of consolidating its pork processing operations in one facility in Brandon, Man., so it could focus on its branded meat, bakery and meals products.

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