Spinning off an industry-leading pork business
"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"
Michael H. McCain
Maple Leaf Foods Executive Chair
Mutual growth underpinned by an evergreen supply agreement
The new pork company will continue to provide Maple Leaf Foods with a secure supply of high-quality, sustainable pork at market prices. This will meet the needs of the existing firm’s prepared foods business, while providing the new company with a strong anchor customer.
Delivering
value creation
Maple Leaf Foods is poised to unlock growth and value through two businesses rather than one: with Maple Leaf as a more focused, brand-led consumer packaged goods company, and a newly-separated world-leading pork business. RBC Capital Markets advised the Special Committee and the Board of Directors, providing a fairness opinion.
Ontario-based Maple Leaf Foods is an iconic Canadian food company, employing 13,500 people and trading under multiple brands across Canada, the U.S and Asia. In July 2024, it announced a plan to spin off its pork business into a separate independent public company.
By freeing both companies to focus on their unique business models and respective growth trajectories, the transaction is expected to unlock significant value for shareholders. It will take effect in 2025, subject to shareholder and otherwise customary approvals.
The new pork company will have a strong anchor customer in its former parent: it will continue to provide Maple Leaf Foods with sustainable pork for its prepared foods business. It will also enjoy enhanced management focus and flexibility to pursue growth in its global business - sales of which are already ~80% outside of Maple Leaf Foods.
Accelerating
strategic support
RBC Capital Markets’ advice to the Maple Leaf Foods directors drew on a long relationship with the company and a profound understanding of its history and ambitions.
The company undertook a long period of organic capital investment. This concluded in 2022, but the results were overshadowed by a severe dip in global pork markets. That challenge is now receding, reopening opportunities for the pork production company.
Maple Leaf Foods’ perception in the market also fed into the RBC team’s analysis: equity research valuations have tended to treat the company as a blend of consumer and commodity operations - but with an overall weighting closer to commodity peers. Historically the company has traded at a discount to its leading branded protein peers, despite an overall business focus on owning leading brands.
The spin-off was therefore backed up by market logic. Maple Leaf Foods will remain focused as a branded CPG protein company, with a leading position in Canadian prepared meats and poultry and North American sustainable meats and plant protein. The spin-off will be a vertically-integrated pork production and processing operation, with strong global positioning, expected to be Canada’s leading pork business. Each will benefit from sharpened execution focus by dedicated management teams.
Reaction to the announcement confirmed the prospects for value creation at both companies. Shares in Maple Leaf Foods posted an immediate 8.7% gain, and equity research predicted that successful execution could prompt a re-rating of the company.
"Looking ahead through 2024, we see accelerating free cash flow, driven by a combination of moderating strategic capex… and a gradual normalization of the commodity backdrop"
Irene Nattel, Research Analyst, RBC Capital Markets
Sustainability at the forefront
Maple Leaf Foods aims to be the world’s most sustainable protein company. With global demand for sustainable pork on the rise, the new spin-off business – a key producer of pork raised without antibiotics – will sustain that mission.
Striking at the right time for growth
Global demand for sustainably produced protein is expected to grow significantly. The spin-off plan has been announced as Maple Leaf Foods has completed its significant capital projects and is poised to harvest the benefits, with margin expansion already under way.
Executing
for success
The separation of the business will be achieved by distributing 80.1% of the new pork company among the existing shareholders of Maple Leaf Foods on a pro-rata basis.
The plan already has the support of Maple Leaf Foods’ largest shareholder, McCain Capital, and will now be put to other shareholders at a special meeting. The separation will create two compelling investment opportunities, each benefiting from a distinct value proposition, growth strategy, and sharpened focus from dedicated management teams.
Driving to an optimal structure and assessing the value-creation potential was critical to the success of the transaction. This was a complex deal that requires "going beyond the business" to assess new shareholder, supply and services agreements that all needed to be considered from the lens of the Public Shareholders. RBC Capital Markets supported this process by providing a fairness opinion to Maple Leaf Foods’ special committee of independent directors, established to consider the separation plan.
RBC Capital Markets’ strategic market insights, and deep knowledge of Maple Leaf Foods, and leading expertise advising on related-party transactions, combined to help the Board of Directors consider the full potential of its strategic spin-off plan.
Sources
All transaction details and forward looking statements sourced from the following press announcement.