MIKE CASSESE
A dispute between the largest shareholders of Maple Leaf Foods has boiled over as a pair of directors from the Ontario Teachers' Pension Plan abruptly resigned, raising new questions about whether the company can follow through on its ambitious restructuring plans.
Maple Leaf's two biggest shareholders, the McCain family and Teachers, have locked horns for months over the company's future. The McCains, led by Maple Leaf chief executive officer Michael McCain, want to spend about $1.3-billion on a program that would see it close inefficient plants and acquire new, more-efficient equipment.
Mr. McCain, whose family owns about one-third of the shares, has argued that the plan is the only way Maple Leaf can stay competitive against U.S. competition with the Canadian dollar near parity. He insisted earlier this month that the restructuring would boost profit margins by 75 per cent over the next five years, and said all of the measures had received unanimous support from the board twice in the last year.
But Teachers, which recently ended a long-standing shareholders' agreement with the McCains, appears increasingly uncomfortable with the company's direction. It recently sold nearly one-third of what had been a 36-per-cent stake to West Face Capital Inc., an activist hedge fund that is said to oppose the capital spending plan. And Thursday's departure of the two Teachers representatives on the Maple Leaf board, Wayne Kozun and William Royan, has now put the claim of boardroom cohesion into doubt.
According to a statement from Maple Leaf, both men left after requesting amendments to the minutes from a recent board meeting to reflect their concerns. They wanted the record to show that they approved Mr. McCain's plans subject to the company reviewing other options, in particular the sale of a rendering plant, the company said.
"The Board has accepted these resignations, but the reasons given for them seem to be inconsistent with Mr. Kozun's and Mr. Royan's repeated support for the company's strategy," James Hankinson, chair of the board's corporate governance committee, said in a statement. "The board unanimously approved the strategic plan including a requirement that management examine whether partial pre-funding of the plan is warranted. At no time was the approval of the plan conditional upon the outcome of the review."
Sources close to the board said there were three board meetings in September and October and Mr. Kozun and Mr. Royan supported the plan and the direction of management. They only requested that management evaluate the rendering plant's future by the end of next month. The company said Thursday it will keep the plant.
A spokeswoman for Teachers declined comment.
The resignations have raised questions about whether Mr. McCain will be able to follow through on his plans and what actions Teachers and West Face might take. With a combined 36-per-cent stake, they have enough shares to requisition a shareholders' meeting and attempt to wage a proxy fight to replace the board.
"It remains to be seen how the vacated board seats will be filled, and what actions, if any, [Teachers]undertakes to follow through with their dissatisfaction with the value-creation plan," James Durran, an analyst at National Bank, said in a report Thursday. The analyst added that "one way or another, investors are likely to see further share price upside, whether it comes through realization of management's targets (the support of which is increasingly in question), or other value-creation activities initiated by West Face Capital,"
The resignation announcements came just before Maple Leaf reported a third-quarter loss of $16.1-million, or 12 cents a share. That was in line with most analysts' expectations and it compared to a profit of $22.5-million, or 17 cents, a year earlier. Revenue was steady at $1.29-billion.
During a conference call with analysts, Mr. McCain said the results were encouraging given the current climate of food inflation and they marked the sixth-consecutive quarter of earnings growth. Maple Leaf is paying more for its raw materials, as agricultural commodity prices rise, but it has been able to pass along those costs through its sales.
Mr. McCain declined to comment on the directors' resignations. "Our job as management is just executing the plan that we have and that's what we are doing. We're focused on it."
Paul Waldie