'Too logical to ignore': Maple Leaf to spin off pork business into new public company

MISSISSAUGA, Ont. — This little piggy is going to market.

Maple Leaf Foods is spinning off its pork business into a new publicly traded company, the firm announced Tuesday.

It's something that's been in the works for a little while, but the time is now right, said chief executive Curtis Frank in an interview.

That's thanks to pork markets normalizing from pandemic disruptions and the completion of significant capital investments in two manufacturing facilities, he said.

"We operate two very successful, but very distinctive businesses — one a consumer packaged goods company, the other a world-leading pork complex," Frank said.

"The opportunity to separate them to unlock value and unleash their full potential was too logical to ignore. So this is a very big part of our strategic blueprint for the future."

With the deal, Maple Leaf said it will be a more focused brand-led consumer packaged goods company.

The company's portfolio going forward will include the prepared meats business, which houses brands like Maple Leaf and Schneiders; the poultry business; and the plant protein category, said Frank.

The shift is also an opportunity to "find the appropriate pathways to restoring growth in the plant protein category," he said.

A big part of the company's strategy is to expand in the U.S., added Frank.

Under the plan, existing Maple Leaf shareholders will receive shares in the new company, while Maple Leaf will keep a 19.9 per cent ownership position.

The two companies will also enter into an evergreen pork supply agreement, with the new pork company continuing to provide Maple Leaf Foods with a secure supply of pork at market prices for its prepared foods business.

The name of the new company is "in hot debate right now," said Frank.

Maple Leaf will continue to be led by Frank, while the new pork company will be led by Dennis Organ, who joined Maple Leaf Foods in February 2023 as president, pork complex.

"We have a strong history of profitability in our pork business. And we are excited by the fact that market conditions have shown improvement in recent quarters," said Organ on a conference call discussing the decision on Tuesday morning.

There are multiple opportunities for the new pork company to build value, he said. For example, the Manitoba processing facility is currently operating below capacity, and so optimizing that facility "is a key strategic initiative that promises substantial returns without significant capital investments," he said.

The plan has been approved by the company's board of directors and has the support of Maple Leaf Foods' largest and controlling shareholder, McCain Capital Inc. and the McCain family.

Maple Leaf executive chair Michael McCain said it was the right transaction at the right time.

"It would have been incredibly challenging to complete this transaction during the pandemic, or in the post-pandemic economy," he said on the conference call.

"We're coming out of that, though, we're actually recovering from that dysfunction. And you're seeing that in the quarterly results. So the timing is basically perfect right now."

In May, Maple Leaf announced a profit in its first quarter compared with a loss a year earlier as pork markets improved.

The transaction, which is also subject to shareholder approval, is expected to be completed in 2025.

Shares in Maple Leaf closed up almost nine per cent Tuesday on the Toronto Stock Exchange at $24.40.

This report by The Canadian Press was first published July 9, 2024.

Companies in this story: (TSX:MFI)

Rosa Saba, The Canadian Press