An aggressive takeover bid by Maple Leaf Foods Inc. for rival hog processor Schneider Corp. last week justified months of speculation about the future of both companies.
While communities across Western Canada wondered where Maple Leaf would choose to build its much ballyhooed new plant, industry analysts believed Schneider’s weak balance sheet left it ripe for the picking.
Schneider was hit hard by shutdown costs for an old plant in Kitchener, Ont. just as pork prices swung to all-time highs and it poured concrete for a new $50 million plant in Winnipeg.
Read Also
Forecast leans toward cooling trend
July saw below average temperatures, August came in with near to slightly above average temperatures and September built on this warming trend with well above average temperatures for the month.
According to its 1996 annual report, the company lost $9.8 million.
“I almost think if it hadn’t been Maple Leaf, it probably would be someone else, like an American” making a takeover attempt, said Jim Morris, former general manager of Saskatchewan’s hog marketing agency.
Maple Leaf officials have said it’s too early to say what effect the proposed takeover might have on plans for a new plant.
But analysts said the merged company would logically use the new Schneider plant in Winnipeg as its focal point, spending money to finish the project and retool its nearby Burns plant.
“They would clearly have bought the state-of-the-art processing facility in Western Canada, here in Winnipeg,” said Daryl Kraft, agricultural economist at the University of Manitoba.
Eric Jensen, a senior management consultant at Deloitte and Touche, said the Maple Leaf bid is a positive move toward improving a relatively unprofitable segment of the food processing industry.
The U.S. industry went through consolidation about four years ago and Canada needs to follow, said Jensen.
Large companies can put the time and money into critically important research and development, marketing and innovation, he added.
Maple Leaf chair Wallace McCain bought the company in 1995, losing $43.7 million the first year but turning a $42.1million profit in 1996.
Last year, Maple Leaf took its first step toward pork power by buying the $100 million Burns processing company.
From his office in Saskatoon, Intercontinental Packers president Fred Mitchell listened to the takeover news with bemusement.
“Maple Leaf certainly has a lot on its plate,” he said. “They’re still digesting the acquisition of Burns and Gainers.”
Mitchell said the company faces big costs in streamlining plants, brands and distribution networks if it buys Schneider.
“I don’t know if Donovan Bailey would be sprinting for the Dutch girl,” he said, referring to Schneider’s corporate logo.
Mitchell recognizes Maple Leaf is bidding not only on a rival, but to position itself as the leader in the Canadian industry.
But he said his 58-year-old business is strong after a recent reorganization, and will benefit from consolidation of other plants.
“It should make retailers a little more concerned about having some alternate source of supply, which would be good for our company,” he said.
“I don’t believe that Maple Leaf is going to get every pound of business in Canada.”
Schneider Corp. hasn’t revealed how it will respond to the takeover.
Chair Douglas Dodds said Maple Leaf hasn’t formally sent Schneider an offer, despite its announced intentions.
The company won’t comment on the offer until it receives it, and a special committee of the board of directors reviews it, he said Nov. 7.
Merger had been contemplated
Maple Leaf had approached Schneider to gauge interest in merging, said Dodds, but then decided not to pursue the idea.
Regardless of what happens with the takeover bid in coming weeks, analysts say Schneider will be left in a vulnerable position.
Said Kraft: “If they choose to fight it, it means they’re trying to delay it as long as they can to either increase the share value or find somebody else.”
