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Maple Leaf adopts poison pill plan
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Toronto Star- Maple Leaf Foods Inc. saw profits skyrocket in the second quarter, despite rising prices for raw materials.
Maple Leaf Foods Inc. saw profits skyrocket in the second quarter, despite slower sales and rising prices for raw materials including wheat, corn, chicken and beef, the company announced Thursday. The company also unveiled a poison pill provision, sparking suggestions it’s a target for takeover.
Maple Leaf said its net earnings rose to $24.6 million, or 16 cents per share, from $4.9 million or two cents a share last year. Sales fell to $1.24 billion from $1.27 billion. This was partly due to Maple Leaf selling off some of its units, such as its sandwich business.
In trading on the TSX, shares fell 16 cents to close at $10.91.
CEO Michael McCain credited a mixture of aggressive cost cutting and price increases for the boost in profits. The company has already announced plans to close several plants, and has been trimming its dizzying array of products. Being able to raise prices has also been key as the cost of raw materials has shot up, McCain said.
“Food inflation continues to be the story for the food market around the world. It’s been a challenge to pass on in the marketplace, but we’ve been able to do so,” said McCain.
McCain also noted that the company’s agribusiness operations — including hog farming and biodiesel — actually benefitted from rising commodity prices.
McCain, meanwhile, will be taking over his family holding company’s shares in Maple Leaf.
McCain Capital Corp. announced it was selling its 31.3 per cent stake in the company to McCain, fulfilling the wishes of his father Wallace McCain, who died of cancer in May.
“It reflects my very strong belief in the company,” McCain said in a conference call with analysts.
It’s been a turbulent few years for the company, which in 2008 was determined to be the source of a listeria outbreak which killed 23 people.
The company also unveiled a “poison pill” defence Thursday which could be used to ward off a potential hostile takeover. It kicks in when any investor takes a stake of 20 per cent or more in the company. The next biggest shareholder in Maple Leaf after McCain is activist investor West Face Capital, which holds just over 11 per cent of the company’s shares.
This spring, Maple Leaf named a West Face representative to the board after taking heavy criticism. That came shortly after the Ontario Teachers Pension Plan sold its stake in the company, also citing concerns over its corporate governance.
Robert Gibson, a consumer products analyst at Octagon Capital Corp., said the poison pill plan suggests the Maple Leaf board is anticipating a takeover bid.
“I don’t know that there’s anything imminent, but I think there’s something out there,” said Gibson, adding the company would be a good fit for a wide variety of investors.
“It could be almost anybody. It could be another food processing company, it could be an investment banker,” said Gibson. One investor Gibson suspects it won’t be, however, is West Face.
“I think if this were going to be directed at West Face, it probably would have happened last year, not now,” Gibson said.
Before it sold its stake in Maple Leaf, OTPP had been critical of another proposed poison pill. Activist shareholders in a wide variety of companies have criticized poison pills as entrenching the interests of corporate boards and executives at the potential expense of shareholders.
When it’s used properly, however, it can allow a board and shareholders enough time to properly consider a takeover bid, said Ermanno Pascutto, executive director of FAIR Canada, a shareholders’ rights organization.
“It’s like any tool. It can be used for good, or it can be used for not good,” said Pascutto, who said he wasn’t referring specifically to Maple Leaf.
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