Sold! Buyer picks up Maple Leaf's Burlington plant for $20 million

Monday, November 8, 2010

by BETTER FARMING STAFF

For more than four years the question hovered over Ontario’s hog producers as they struggled with low prices, high costs, restrictive legislation in the United States and bad optics connected to a worldwide flu scare: What would happen to Maple Leaf Foods Inc.’s Burlington processing plant?

Today, the company that first publicized intentions to sell the plant in October 2006 announced a buyer: Sun Capital Partners, Inc., an international private investment firm.
A Maple Leaf news release issued this morning said the sale, valued at $20 million, would close in a few days.

The company was “very pleased” with having found a buyer who would continue to operate the plant, states Michael Vels, Maple Leaf’s chief financial officer, in the release.

Mary Jane Quinn, a spokesperson for Ontario Pork says the sale "removes a lot of the uncertainty that has been facing the industry for years."

Finding a hog producer near the plant to comment on the sale has become harder to do. “There’s not a lot of producers left in this area,” observes Paul Bootsma, a former hog producer living in Brant County.

Rick Vandenbos farms about a half an hour away from the plant in Binbrook. He doesn’t ship the 6,000 animals he finishes to the plant but says with the small number of pork processors in the province the sale “concerns all of us.”

The new owners have not yet outlined their intentions, he says. If the plant ends up closing, that essentially leaves only two processors remaining in the province. “That’s not a very comfortable feeling,” he says. “The pork industry doesn’t need any more hits.”

There are many unknowns, says Jasper Vanderbas, who owns a 150-sow farrow-to-finish operation in Oxford County. Vanderbas ships pigs to the plant through Ontario Pork’s marketing pool.

“Will the supply contracts be continuing?” he asks. Will the new owners have access to Maple Leaf trade logos, which he describes as “one of the most recognized” in the industry?

“It’s my hope that Sun Capital will run the place successfully and that they become a reliable partner in the industry,” he says.

John de Bruyn, who owns a 700-sow farrow-to-finish operation with his brother Dave in Oxford County, says he hopes the sale will be good for the industry. “I certainly hope they’re willing to meet with the producers in Ontario here and see that we’ve got a good group of producers willing to work with them.”

De Bruyn hasn’t sold directly to Maple Leaf for a long time. “But they’re an important player in this province.” The plant can slaughter 45,000 hogs a week, nearly half of the 93,000 hogs processed in Ontario in the last week in October.

Ken McEwan, a University of Guelph professor specializing in agricultural economics, calls the sale a positive.

From the producers’ perspective it provides an extra market, removes a risk factor and should bring certainty in terms of access to shackle space and long-term contracts. “The contracts that have been offered to the producer base have been shorter ones just simply because it was unclear where this plant was going,” he says.

For Maple Leaf it’s a step toward a new business model of value added, branded, consumer focused meats. “They have wanted out of Ontario; they have wanted out of the commodity pork production” for a long time, he says. Maple Leaf sold its animal nutrition business to Nutreco Holding NV for $500 million in July 2007.

McEwan admits that he had not heard of Sun Capital but notes that the firm might “bring some good things to the table.” Among these: access to “substantial volumes” of capital, expertise in value added or commodity business operations and market timing.

On its website, Sun Capital lists Boca Raton, Florida as the location of its head office. Among numerous food company holdings is canner CanGro Foods Inc. in Burlington.
Cangro Foods closed a peach canning plant in St. David’s near Niagara Falls and a corn and pea canning plant in Exeter in 2008. Cans of peaches sold under the familiar Aylmer brand name now say “Product of China.”

In its 2010 consolidated interim financial statement, Maple Leaf listed the Burlington plant and equipment’s value as $35.8 million as at Dec. 31, 2009. It dropped the amount to $1.8 million Sept. 30, 2010. McEwan says depreciation might explain the difference in valuation. “Depreciation on some of those (equipment) assets can be substantial,” he says, noting some could be written off in a year. He cautions that the values may have little to do with fair market value.

McEwan says it’s hard to determine if Sun Capital acquired the plant at a good price. “No one really knows what the real estate value is worth,” he explains. As well, there are few details about the deal’s long term agreement with Maple Leaf’s rendering operation. At face value, the deal “looks good.”

Obtaining a good deal is key to obtaining a competitive edge, he adds. “The history of hog processing plants in North America has not been good.” High production volumes and low profit margins characterize the business. There have been recent examples of plants having to close, such as the 2009 failure of Illinois co-operative Meadowbrook Farms.

With nearly 80 per cent of the pork moved in Canada being unbranded, undifferentiated fresh or frozen commodity pork, “my guess is that will be the market they go to,” McEwan says. BF