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Maple Leaf shareholder not planning quick exit

Date: Tuesday, December 7, 2010
Author: Jacquie McNish, The Globe and Mail

The money manager who is challenging the board of Maple Leaf Foods (MFI-T11.38-0.24-2.07%) says he doesn’t want to break up the company – he just wants to make management and the board more accountable for its performance.

West Face Capital Inc. chief executive officer Greg Boland, speaking publicly for the first time since his hedge fund acquired a 10-per-cent stake in Maple Leaf Foods in August, denied widespread market speculation that he is aiming to take apart Canada’s largest food-processing company.

He said West Face took the unusual step last week of requisitioning a shareholder meeting to propose board changes because it feels its complaints about boardroom conflicts of interest were falling on deaf ears.

West Face is not seeking a quick return on its investment and instead plans to hold the stake for five years, he added.

“We do not want to break up the company, nor are we in are we in a position to do so,” Mr. Boland said in an interview on Monday in his spartan office overlooking Toronto’s Bloor and Yonge streets.

“We believe that lack of independence on the board and its subcommittees has resulted in lack of management accountability for poor performance and food safety,” Mr. Boland said.

 Mr. Boland said he believes a number of Maple Leaf Foods’ directors, including veteran Bay Street deal maker Purdy Crawford, are too closely tied the company’s chief executive officer Michael McCain and his family, who control about a third of the food company’s stock.

“We have the highest respect for Mr. Crawford’s achievements, but by our standards he is not an independent director,” Mr. Boland said.

Mr. Crawford attended New Brunswick’s Mount Allison University with Maple Leaf chairman Wallace McCain; and Mr. Crawford’s law firm, Osler Hoskin & Harcourt LLP, has been a legal adviser for years to the company and to the McCain family’s private holding company, McCain Capital Corp. Mr. Crawford is also a director on the board of McCain Capital.

In a statement, Mr. Crawford defended the governance practices of Maple Leaf Foods as being “among the best in Canada.” He accused Mr. Boland of trying to “redefine” accepted standards of boardroom independence and he defended the integrity of the board’s decisions.

“Maple Leaf Foods has always maintained high standards of corporate governance and continues to do so. In light of recent changes in the board’s composition and the makeup of our shareholder base, and well before West Face raised concerns about governance, the board initiated a board renewal process. West Face was invited to present its views on this process to the board but chose to launch a proxy fight instead,” Mr. Crawford said.

On Friday, West Face called for a special meeting to allow shareholders to vote on a referendum to reduce the number of seats on Maple Leaf Foods’ board to nine from 12 and install a new slate of independent directors. Mr. Boland said the vote will be non-binding because the hedge fund’s aim is to send a message to the board that the company’s strategic and operational issues can be more effectively supervised if directors are “free of personal, financial and professional conflicts with the McCain family.”

In a statement last week, West Face expressed disappointment with the board’s authorization of a recent billion-dollar plan to reorganize its struggling meat-processing operations, which have been hurt by a rising Canadian dollar and a deadly listeria outbreak in 2008.

Ian Cooke, a portfolio manager with Calgary base QV Investors Inc., which holds a 2-per-cent stake in Maple Leaf Foods, said he supports West Face’s campaign for new independent directors. Past investments by Maple Leaf Foods in new facilities have delivered “subpar” returns, Mr. Cook said, and its board’s “accountability and governance needs to be much better.”

By launching its proxy battle, West Face is pursuing an unusually aggressive strategy against a major Canadian company and its board of blue-chip directors, which includes Woodbridge Co. Ltd. chief executive officer Geoff Beattie, former Xerox Canada CEO Diane McGarry, and former Ontario Teachers’ Pension Plan chairman Claude Lamoureaux.

Teachers severed its 16-year alliance with Maple Leaf Foods and the McCain family earlier this year after what sources described as a number of acrimonious boardroom disputes about the company’s expensive reorganization plan. Teachers sold the first block of its one-third stake in Maple Leaf Foods to West Face in August and the remainder was sold recently to an underwriting group.

Sources said West Face has met with Maple Leaf’s board and some of its directors on a number of occasions to propose boardroom changes. The most recent meeting occurred last week, when people familiar with the talks said West Face, with the backing of some unnamed shareholders, proposed a slate of three new directors be nominated to the board. Two of the proposed directors were described as businessmen with food experience and the other was linked to West Face.

Sources said Maple Leaf Foods rejected the suggestion because it is currently seeking to hire two new independent directors to replace departing directors from Teachers.