(Corrects last paragraph to show that Canada Bread's specialcommittee, not Maple Leaf, hired CIBC)
By Euan Rocha and Rod Nickel
TORONTO/WINNIPEG, Manitoba, Oct 21 (Reuters) - Canadian foodprocessor Maple Leaf Foods said on Monday it may sellits controlling stake in Canada Bread Company as itdetermines whether to exit the bakery business and focus on meatproducts.
Toronto-based Maple Leaf said it has recently completed a comprehensive review of opportunities to accelerate profitablegrowth across its bakery business. But before committingresources, it decided to explore strategic alternatives,including a sale of its 90 percent stake in Canada Bread.
"This is about a great business with a good view to help itto grow profitably over the next four or five years, but becausewe're at a crossroads ... we felt it was prudent to consider thealternatives," Maple Leaf Chief Executive Michael McCain said inan interview.
Maple Leaf's shares jumped 10 percent to C$14.63 bymid-afternoon on the Toronto Stock Exchange, while those ofCanada Bread rose 6.4 percent to C$65.15.
In the event of a sale of the business, Maple Leaf said itwould consider using the proceeds to pay down debt, reinvest inits business and return capital to shareholders.
The potential sale of its Canada Bread interest, following adeal in August to sell its rendering business, does not signalthat Maple Leaf itself is for sale, McCain said.
Maple Leaf has the choice to operate an integrated businessthat includes the bakery, or become a protein-focused company,McCain said.
In response to an analyst's question on a conference callabout whether Maple Leaf is signaling it is for sale, he said"the answer ... is a very unequivocal 'no.'"
The company cautioned that there could be no assurance thata sale of the business will occur. Maple Leaf expects toconclude the strategic alternatives process in early 2014.
In a separate statement, Canada Bread said it has appointeda special committee comprised of its independent directors toensure that all of its shareholders are treated fairly and thatthe company's interests are taken into account.
Canada Bread, which has a market capitalization of roughly C$1.66 billion ($1.61 billion), employs some 6,400 people inoperations spread across Canada, the United States and Britain.
It is one of two dominant Canadian bakers, along with foodproducer George Weston Ltd, parent of the Loblaw Cos Ltd grocery chain. To find a strategic buyer, Maple Leafwould likely have to go outside Canada to avoid competitionconcerns, McCain said, but he also noted possible interest fromprivate equity buyers in Canada and elsewhere.
For a foreign investor to buy Canada Bread, approval by theCanadian government would be necessary.
Under the Investment Canada Act, the federal government haspowers to veto any foreign takeover of a Canadian asset orcompany worth at least C$344 million if it deems such a dealwould not bring a "net benefit" to the country.
Canada Bread, in addition to bread sold under the Dempstersbrand, sells pasta and other products under banners such asOlivieri, Ben's, POM and Sunmaid.
McCain has in recent years highlighted a consumer move awayfrom eating bread, driven by some popular diets, but said Mondaythat such trends were not behind Maple Leaf's possible exit ofthe bakery business. In fact, if the company holds onto itsCanada Bread stake, it is confident that through organic growthand cost-cutting it can capitalize on new opportunities.
McCain said he was not under pressure from investors, whichinclude activist hedge fund West Face Capital, to look at asale.
Thomas Dea, a partner in West Face Capital, Maple Leaf'ssecond-largest shareholder after McCain, declined to comment.
Canada Bread, which recently opened a new bakery atHamilton, Ontario, had sales of nearly C$1.6 billion in 2012.Those sales were the lowest in five years, although its netearnings last year of C$71 million were the highest in threeyears, according to the company's website.
Analyst Robert Gibson of Octagon Capital Corporation said itwould make more sense for Maple Leaf to reduce its Canada Breadstake rather than sell it outright, but Maple Leaf ChiefFinancial Officer Mike Vels said the company is looking to sellall or none of its shares.
In August, Maple Leaf agreed to sell its profitablerendering and biodiesel business, Rothsay, to DarlingInternational Inc for about C$645 million in cash.
Canada Bread's special committee has engaged CIBC WorldMarkets Inc to act as its financial adviser.
($1 = 1.0283 Canadian dollars) (Reporting by Euan Rocha in Toronto and Sneha Banerjee inBangalore; Editing by Kirti Pandey, Maureen Bavdek and RichardChang)
- Investment & Company Information
- Canada Bread
- Canada Bread Company