Maple Leaf Foods considers selling its bakery business by early 2014
Food processor looking for costs savings as part of a seven year manufacturing plan.
TORONTO — Maple Leaf Foods has put its bakery business on the auction block as it explores possibilities that would get the most out of its 90% stake in Canada Bread.
Chief executive Michael McCain said that while the company hasn’t decided the future of the bread operations, a sale is on the shortlist of possibilities.
“We started a process to consider alternatives,” he said in an interview.
If a deal materializes, popular brands like Dempster’s, Tenderflake, and Olivieri pastas would find themselves in the hands of a new owner.
Maple Leaf has been scouring its operations for cost savings as part of a seven-year restructuring plan that would improve the profits of the overall business, which is primarily focused on meat products.
“The bakery business performance has plateaued – at a high level, but plateaued over the course of the last few years,” McCain said.
A decision to court potential buyers comes after Maple Leaf found that revamping its bread operations over the next five years would involve further cost cutting and expansion plans that “require resources, focus and management time and effort,” McCain said.
The extra time and effort would be dedicated to reigniting consumer interest in bread and “revitalizing the category,” McCain told analysts on a conference call.
The company would also need to reduce expenses in other ways, which would likely include layoffs and other expense reductions.
Those efforts come with “some measure of risk” for the company, he added.
Before Maple Leaf decides its next steps, the company plans to see who else might want to take on the responsibility.
Analyst Bob Gibson at Octagon Capital Corp. said he was surprised by Maple Leaf’s decision to weigh a sale of the assets, and he sees potential problems in trying to separate the bread and meat divisions.
“There’s too much integration between the two companies,” he said. “I don’t think it makes sense.”
Gibson said the bakery operations have delivered relatively consistent earnings over time, while the pork business “fluctuates all over the place.”
“You have a couple of good years and a couple of lousy years,” he said.
Meanwhile, shareholders appeared optimistic that a deal would be carved out, with Maple Leaf stock up $1.33, or 10%, to close at $14.63.
This year, the company’s stock has risen about 22% on rumours that outsiders could acquire pieces or even the entire company.
Canada’s largest food processor has been undergoing major changes for several years as part of a $1.3-billion restructuring plan that involved shutting down several plants and selling others.
Maple Leaf closed two bakeries in the Greater Toronto Area and consolidated production at a new bakery in nearby Hamilton, Ont.
Maple Leaf also recently sold its Rothsay rendering business to Darling International, a Texas-based business, and this summer reached an agreement to transfer its commercial turkey farms, hatchery operation and breeding farms to two Ontario-based companies.
© 2013 The Canadian Press