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Maple Leaf Foods (MFI-T) has adopted a shareholder rights plan and its chief executive has acquired nearly a third of its shares, the Canadian food processor said on Thursday, prompting speculation that the company is preparing to ward off a takeover attempt.
The company said the shareholder rights plan is not a response to any actual or anticipated transaction and replaces a plan that expired last year. But it follows a standoff with an activist investor earlier this year and last year's exit of Ontario Teachers' Pension Plan, its biggest shareholder at the time.
The surprising moves, announced shortly after the company reported a five-fold increase in quarterly profit, amount to CEO Michael McCain taking a firmer grip of the company, which has not been the subject of previous takeover chatter, Octagon Capital analyst Robert Gibson said.
"I read into it that something's going on," he said.
Maple Leaf, a top meat processor and baker, may present an attractive takeover target, with its shares considered undervalued and having embarked on an ambitious plan to modernize operations, Gibson said.
Maple Leaf has said it is concerned about losing market share to its big U.S. meat-processing rivals, including Smithfield Foods and Hormel.
The company said Michael McCain would buy all shares held by McCain Capital Corp, the company's largest shareholder, which is already controlled by Michael McCain's family. That will see the CEO own 31.9 percent of total shares outstanding.
Former Maple Leaf Chairman Wallace McCain, Michael McCain's father and an investor in McCain Capital, died earlier this year.
Also earlier this year Toronto-based Maple Leaf gave a seat on the board to West Face Capital, a large shareholder and activist investor, which had been critical of the company's corporate governance.
The move came months after the resignation of two board members and the exit of Ontario Teachers' Pension Plan.
Second-quarter net profit jumped nearly fivefold, helped by price increases and cost-cutting, Maple Leaf said.
The company earned $24.6 million, or 16 cents a share, up from $4.9 million, or 2 cents a share, a year earlier.
The latest results included costs of $16.6 million for closing some processing plants.
Excluding these and other items, earnings of 30 cents a share beat analysts' average estimate of 21 cents, according to Thomson Reuters I/B/E/S.
"On first blush, (the earnings) look really, really good," Gibson said.
Maple Leaf raised prices for its products, which include Schneiders meats and Dempster's bread, saying the cost of raw materials continues to rise.
Closing some meat plants provided savings on operations, helping the company's protein group record a higher profit, Gibson said.
Sales fell 3 percent to $1.24 billion, due mainly to business divestitures, but in line with expectations.
A deadly meat recall in 2008 hammered the company's shares and earnings, but last year it launched an ambitious plan to rebuild profits by modernizing some plants and closing others.