A Maple Leaf Foods offer to buy assets of hog producer Puratone Corp. for $42 million is an attempt to ward off potential supply issues at its Brandon slaughter plant.
Maple Leaf’s offer includes Puratone’s livestock, facilities and interests in some joint ventures.
“This acquisition will ensure a consistent supply of hogs to our processing facility in Brandon, which is an integral supplier to our value added prepared meats and pork business,” said Maple Leaf president Michael McCain.
The move came after widespread speculation that the Toronto-based company would bid after its competitor Olymel offered $65.25 million for Big Sky Farms.
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Big Sky, based in Humboldt, Sask., and Puratone, based in Niverville, Man., both ran into trouble with creditors after soaring feed costs and the high Canadian dollar led to significant losses.
Both offers to purchase could close within a month.
Maple Leaf has been downsizing its hog operations for years to reduce earnings volatility, said Christine Healy, a food business analyst with Scotia Capital Inc.
Expanding those operations now is viewed as negative, she said, but also as a strategic necessity.
“Maple Leaf could not risk having a hog supply shortage, given pork represents the majority of its revenues in the protein segment,” she wrote in a research note.
“We are satisfied that the purchase price is small enough that it will not impair (Maple Leaf Foods’) balance sheet nor impede its ability to complete its restructuring initiatives.”
Puratone’s assets include 50 barns, three feed mills and production of 500,000 hogs a year.
The deal would give Maple Leaf ownership of 30 percent of the hogs supplying its Brandon plant. The company now owns 18 percent of supply. Its hog production would grow to 1.2 million head per year.
Puratone remains under court protection from its creditors. The stay was extended last week until Nov. 12.
Chief executive officer Ray Hildebrand said a sale to Maple Leaf would provide stability and opportunity for Puratone employees and stakeholders. The deal would involve integration of the two companies. No immediate changes are expected.
Meanwhile, if another company is to outbid Olymel for Big Sky, it has until Nov. 9 to do so.
