Creating two independent public companies each with a sharper focus to execute its own growth strategy and pursue its uncompromising commitment to best-in-class sustainability practices
MISSISSAUGA, ON – Maple Leaf Foods Inc. (TSX: MFI) (Maple Leaf Foods or the Company) announced a plan to unlock significant value by separating into two independent public companies, each primed for growth and positioned to be a leader in its field.
Maple Leaf Foods will continue to pursue its vision to be the most sustainable protein company on Earth, now as a more focused, brand-led consumer packaged goods company that will meet the world’s growing need for sustainably produced protein. By spinning off its pork business, the name of which will be announced in the coming months, Maple Leaf Foods will unlock significant growth potential by unleashing a world-leading organization which produces sustainable meat the right way and can fully take advantage of its own unique business model to unlock its own significant growth potential.
“This transaction is the start of a new era to unlock the full potential of two outstanding businesses, each with a distinct value proposition and growth opportunities,” said Curtis Frank, President and CEO of Maple Leaf Foods. “As separate companies, Maple Leaf Foods and the new Pork Company will each have exciting prospects, a sharpened execution focus with its own dedicated management team, and the financial independence to pursue its own value creation strategy, all with an uncompromising commitment to safety and sustainability.”
Maple Leaf Foods will retain a 19.9% ownership position in the new Pork Company, and the two companies will enter into an evergreen pork supply agreement which will deliver value for both businesses, while also allowing them to pursue their individual value creation opportunities. Under this agreement, the new Pork Company will continue to provide Maple Leaf Foods with a secure supply of high-quality, sustainable pork at market prices, to meet the needs of its Prepared Foods business, providing the new Pork Company a strong anchor customer while allowing it to grow its already material business with customers around the world. Maple Leaf Foods will in turn provide the new Pork Company with brokerage services in North America, as well as certain other services.
The plan to proceed with the separation, which is expected to be completed in 2025, has been approved by the Board of Directors of Maple Leaf Foods, on the recommendation of a Special Committee of the Board, composed entirely of independent directors, and has the full support of Maple Leaf Foods’ largest and controlling shareholder, McCain Capital Inc. and the McCain family.
Maple Leaf Foods will continue to be led by Curtis Frank, President and CEO; Adam Grogan, President and COO; and David Smales, CFO. The new Pork Company will go forward with a strong and experienced management team led by Dennis Organ, incoming CEO of the new Pork Company. Mr. Organ joined Maple Leaf Foods in February 2023 as President, Pork Complex, and is a distinguished industry executive with more than 27 years of experience in the food industry, including 11 years with Smithfield Foods, where he held a variety of senior leadership roles, including Chief Operating Officer and Chief Executive Officer.
“This is the right transaction at the right time as we move forward with our sustainability vision, seeking to create value for all stakeholders,” said Michael H. McCain, Executive Chair of Maple Leaf Foods. “Under Curtis’ leadership, Maple Leaf Foods is on a path to deliver best-in-class consumer packaged goods performance, while the new Pork Company, under the leadership of Dennis, will be unleashed to leverage its unique capabilities and industry-leading performance to take advantage of new prospects for growth.
“I am passionate about both of these businesses and have absolute confidence in the powerful potential of this transaction,” continued Mr. McCain. “Our shareholders will be able to participate in not one, but two strong, independent, sustainable and purpose-driven businesses, each with a clear mandate and investment profile, and all our stakeholders will participate in the shared value we will generate.”
The separation will create value by building on the momentum in the businesses to deliver:
- Two clear and compelling investment opportunities, each with a distinct value proposition and growth strategy.
- Sharpened execution focus from dedicated management teams.
- Continuing best-in-class sustainability practices at both companies and enduring commitments to continue to lead in sustainability.
Maple Leaf Foods– An iconic Canadian company with an inspiring vision and leading brands
Following the completion of the transaction, Maple Leaf Foods will go forward as a focused, purpose-driven consumer packaged goods company, supported by leading brands and market shares in both meat and plant protein, proven innovation capabilities, a world-class supply chain and significantly reduced commodity exposure. The Maple Leaf Blueprint will continue to serve as the company’s strategic compass, as it focuses on driving growth in sustainable meats, expanding its reach in the U.S. market, and diversifying its portfolio of protein products.
“Today’s announcement is a pivotal next step in Maple Leaf Foods’ journey to becoming a globally admired, brand-led consumer packaged goods powerhouse,” said Mr. Frank. “Global demand for sustainably produced protein is expected to grow significantly, and we have built the right platform to unlock stakeholder value as we meet that demand. With our significant capital projects complete, we are harvesting the benefits of these investments, with margin expansion already underway and expected to continue. Now is the right time for this transaction, which positions Maple Leaf Foods for long-term success and brings us closer to our goal of being the most sustainable protein company on Earth.”
The new Pork Company – Unleashing a world-class business for growth
The new Pork Company will be unleashed to pursue its growth prospects as an independent company. The Maple Leaf pork business is already a leader in sustainably produced, premium quality, value-added pork products, is among North America’s largest producers of Raised Without Antibiotics (RWA) pork, and is a key supplier of RWA and conventional pork products to customers in Canada, the U.S. and internationally. The new Pork Company is well positioned to unlock the significant growth potential of its business by investing in both organic and inorganic opportunities, including increasing volumes, optimizing operations and efficiencies, and building on its industry-leading sales mix and margins.
The new Pork Company will also have an evergreen pork supply agreement with its anchor customer in North America, Maple Leaf Foods, and will leverage Maple Leaf Foods’ North American sales network through a brokerage arrangement.
“The new Pork Company will offer investors direct access to one of the world’s foremost, premium value-added pork producers with a clear vision to produce meat the right way while delivering industry-leading financial performance,” said Mr. Organ, President of Maple Leaf Foods’ Pork Complex and incoming CEO of the new Pork Company. “We are already setting the standard for best practices in sustainability, animal welfare, and high-quality pork production. We have seen positive momentum in the business in recent quarters as pork markets continue to normalize following several years of material disruption, and we are extremely well-positioned as a standalone company to leverage our unique advantages to drive growth and generate value.”
Transaction Details, Timing and Future Updates
Detailed information regarding the transaction and the new Pork Company, including carve-out financial statements and pro forma financial information showing the expected impact of the separation, will be included in the prospectus and management information circular that will be provided to shareholders in connection with the transaction.
Management has made preliminary estimates of selected financial information regarding the new Pork Company and the business which will be retained after the separation by Maple Leaf Foods, so investors will have indications of the size of each of the businesses. These preliminary estimates were based on the last twelve months ending March 31, 2024, including an estimate of the effects of the transaction.
- Pro Forma Adjusted EBITDA (as defined below) for the new Pork Company for this period would have been approximately $70 million, or approximately $180 million when adjusted for normal market conditions (as defined below).
- Pro Forma Adjusted EBITDA for Maple Leaf Foods, excluding the pork business, for this period would have been approximately $395 million.
These are preliminary estimates only and are expected to change. See “Non-IFRS Measures and Management’s Preliminary Estimates of Certain Financial Information” for further important information on these estimates and the associated calculations. Each of these figures is expected to be refined prior to the separation, with full financial details to be presented in the prospectus and management information circular to be filed in connection with the transaction.
The transaction will be subject to shareholder approval at a Special Meeting of Maple Leaf Foods’ shareholders, as well as other customary approvals, including the receipt of all required third-party consents. Upon completion of the separation, existing Maple Leaf Foods shareholders are expected to receive a pro-rata distribution of shares of the new Pork Company (subject to Maple Leaf Foods retaining a 19.9% position), and as a result will own shares in both Maple Leaf Foods and the new Pork Company. In addition, the McCain Shareholders and Maple Leaf Foods have agreed to enter into a governance agreement with the new Pork Company at closing which outlines the rights and obligations of the parties, including a commitment by the McCain Shareholders and Maple Leaf Foods to hold the new Pork Company shares for 24 months following closing of the transaction (subject to customary exceptions), as a demonstration of their commitment to the long term success of the business.
The transaction is expected to be structured as a return of capital spin-off. To the extent that shares of the new Pork Company (whether in whole or in part) cannot be distributed through a return of capital, it is anticipated that the Company will distribute such shares of the new Pork Company as a dividend. As Maple Leaf Foods has determined that it would not be able to meet the conditions required for a tax-free structure, the transaction is expected to result in the realization of a taxable gain for Maple Leaf Foods. Further information, including tax consequences will be provided in the information circular.
BMO Capital Markets and Centerview Partners are serving as financial advisors to Maple Leaf Foods, and Blake, Cassels & Graydon LLP is serving as legal counsel. Torys LLP is serving as legal counsel to the Special Committee.
The Special Committee requested from RBC Capital Markets an opinion as to the fairness of the consideration to be received under the transaction, from a financial point of view, to the shareholders of Maple Leaf Foods other than the McCain Shareholders (the “Public Shareholders”). RBC Capital Markets has delivered to the Special Committee and the Board of Directors of Maple Leaf Foods an opinion, dated July 8, 2024, to the effect that, as of such date, based upon and subject to the various factors, assumptions, qualifications and limitations set forth therein, the consideration to be received by the Public Shareholders under the transaction is fair, from a financial point of view, to the Public Shareholders.
Capital Markets Conference Call & Investor Presentation Details
A conference call will be held at 8:00 a.m. ET on July 9, 2024, to discuss this announcement. To participate in the call, please dial 416-764-8650 or 1-888-664-6383. For those unable to participate at the scheduled time, playback will be made available an hour after the event ends, at 416-764-8677 or 1-888-390-0541 (Passcode: 776294#).
A webcast of the announcement will also be available at 8:00 a.m. ET on July 9, 2024 by registering here.
An investor presentation related to the announcement will be made available here under Presentations and Webcasts on the Maple Leaf Foods website.
Non-IFRS Financial Measures and Management’s Preliminary Estimates of Certain Financial Information
The following table presents management’s preliminary estimates of certain financial information regarding the new Pork Company and the business that will be retained after the separation by Maple Leaf Foods. These preliminary estimates have not been audited or reviewed by any third party, have been derived from internal management reporting, and reflect sales, cost and expense allocations, including with respect to corporate expenses, as well as other estimates and adjustments, each of which is preliminary in nature and subject to change.
Management believes that these preliminary estimates are useful in providing an indication of the relative size of the businesses upon separation. Each of these figures is expected to be refined prior to the separation, with full financial details to be presented in the prospectus and management information circular to be filed in connection with the transaction.
About Maple Leaf Foods Inc.
About Maple Leaf Foods Inc. Maple Leaf Foods is a carbon neutral company with a vision to be the most sustainable protein company on earth, responsibly producing food products under leading brands including Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Mina®, Greenfield Natural Meat Co.®, Lightlife® and Field Roast™. The Company employs approximately 13,500 people and does business primarily in Canada, the U.S. and Asia. The Company is headquartered in Mississauga, Ontario and its shares trade on the Toronto Stock Exchange (MFI).
