Strategic Split –Canada Packers

What is the strategic rationale for spinning off Maple Leaf Foods’ pork business? 

The creation of two independent public companies is expected to unlock value for stakeholders and unleash potential for the two companies as they pursue distinctive value creation opportunities with a sharper focus on the execution of their respective growth strategies. 

Maple Leaf Foods will be focused on realizing its vision to be the most sustainable protein company on Earth, now as a more focused, purpose-driven consumer packaged goods company. 

Canada Packers will be unleashed as a world-leading pork business, with its own unique business model and significant growth potential. 

The two companies will have an enduring strategic relationship, with Maple Leaf Foods continuing to be a key shareholder in Canada Packers and serving as an anchor customer for the new pork company. 

The transaction supports the continuation of our leading sustainability practices across both companies. 

How was the decision to spin off the pork business made? 

We have been considering for the future of the pork business for quite some time, and there are two primary reasons now is the ideal time to execute this transaction. 

First, with the pandemic and its impacts behind us, market headwinds are now showing signs of normalization, which is positive for the pork business and its future outlook. 

Secondly, we have completed a significant capital investment program in our prepared foods business and are ready to take the next step in executing the Maple Leaf Blueprint as a brand forward, consumer packaged goods protein company.

These reasons create significant opportunity for both businesses to generate additional value as stand-alone companies. 

The decision was made by the Boad of Directors after extensive detailed analysis by management, and its third party experts, together with oversight by an independent Special Committee of the Board and their independent advisors.

When is the separation expected to be complete? 

The separation is expected to be complete in 2025, assuming we secure our CRA ruling and required approvals in a timely manner. 

What are the next steps in the separation process? 

Work is well underway to separate the two companies, including preparation of all the transaction documents and defining the organizational structures that will carry the two companies forward. We have submitted a request to the CRA for an advance ruling to confirm that the structure we have proposed meets all of the “butterfly” rules and can be completed on a tax-free basis. Generally speaking, we expect it to take about nine months from the time of submitting the request for the CRA to issue a ruling. 

Meanwhile, we are preparing our Management Information Circular (MIC) which will include full prospectus-level details about the transaction and is expected to be filed in May 2025.

The Special Committee of the Board will also be updating its work with its advisors, and has requested RBC to update its fairness opinion, which will be included as part of the MIC.

Shareholders will vote on the transaction at a Special Meeting of Shareholders which we are targeting to hold in June. Because we are proceeding by way of a plan of arrangement, we will also need standard court approval for the transaction. We will also be securing other typical approvals such as lender consents. Full details about required approvals will be outlined in the MIC. 

What are the tax implications to Maple Leaf Foods of this transaction? 

Under the “butterfly” structure, the transaction is expected to be completed on a tax-free basis for Maple Leaf Foods. We have submitted an advance tax ruling to the CRA seeking confirmation that our structure aligns with the “butterfly” rules.

What dividends will I receive from Maple Leaf Foods? What is the dividend policy and dividend I will receive from Canada Packers?  

The current plan is for the initial combined dividends of Maple Leaf Foods and Canada Packers to not be less than Maple Leaf Foods’ annual dividend immediately prior to the completion of the spinoff. 

Future dividends will be at the discretion of each company’s board of directors. Further information on the dividend policies post transaction will be available in the MIC.  

What is the anticipated capital structure for Canada Packers?

The capital structure for both Canada Packers and Maple Leaf Foods is being evaluated. 

Currently, we are targeting an initial leverage ratio in the range of 2.5x to 3.0x Net Debt to Adjusted EBITDA for Canada Packers.

Further information on the capital structure for both companies will be provided in the MIC.

What are the terms of the supply agreement between Maple Leaf Foods and Canada Packers? 

Full details of the supply agreement will be outlined in the MIC. 

The supply agreement has been designed to deliver value for each company, while allowing them to pursue their distinct opportunities.  

Maple Leaf Foods will have access to the sustainably produced cuts of meat it needs for our Prepared Foods business and Canada Packers will be able to sell the balance of their production to customers around the world. 

Canada Packers will also continue to leverage Maple Leaf Foods’ extensive relationships in North American markets under brokerage arrangements, as well as some important IP and trademark assets that present excellent opportunities for Canada Packers as it sets itself up to pursue its business objectives. 

Why wasn’t the “butterfly reorganization” structure pursued originally? What has changed? 

A “butterfly” structure was considered previously. In the original announcement on July 9, we shared that Maple Leaf Foods did not think we could satisfy the conditions necessary for a successful “butterfly reorganization”.

As the separation work advanced over the last few months, Maple Leaf Foods has continued to work with our tax advisors and McCain Capital, and through the combination of reducing Maple Leaf Foods’ retained interest in Canada Packers, and aligning on a set of representations and covenants with McCain Capital, we believe we have landed on a structure that can work, subject to receiving an advance tax ruling from the CRA.

What else changed from the original announcement now that you are going with the “butterfly reorganization”?

There are a few other things that changed:

– Maple Leaf Foods’ retained interest in Canada Packers will reduce from 19.9% to around 16%. This small reduction is to ensure that Maple Leaf Foods complies with some of the technical requirements associated with the “butterfly” rules. We continue to believe in the value of the retained interest as we move forward as two independent companies.
– A plan of arrangement is a court approved process, and so we will go through extra steps securing the required court approvals – this is a well-worn path, and we don’t anticipate any issues or any material impact to the timeline.
– RBC will be updating its fairness opinion to reflect the new structure. 

Why is Maple Leaf Foods retaining 16% ownership in Canada Packers?  

Maple Leaf Foods believes in the future of the pork business as a stand-alone company and its ability to generate value. 

The transaction is designed to unlock value and unleash potential in both companies, and at the same time there are some natural synergies between the companies, including Maple Leaf Foods’ desire to maintain a strong relationship and secure sustainable produced meat for its Prepared Foods business. 

For these reasons, retaining an ownership interest in Canada Packers makes sense for Maple Leaf Foods. 

What is the exchange and ticker symbol that Canada Packers will trade under?  

Shares of Canada Packers will trade on the Toronto Stock Exchange. 

The ticker symbol has not been determined at this time. 

Who is the leadership team and Board of Directors for Canada Packers?   

Dennis Organ, current President of the Pork Complex at Maple Leaf Foods, will be the CEO for Canada Packers. Dennis is a distinguished industry executive who joined Maple Leaf Foods in 2023 after more than 27 years of experience in the North American food industry, including 11 years with Smithfield Foods where he held a variety of roles, including CEO. 

Deepak Bhandari has been named Chief Financial Officer for Canada Packers. 

Other leadership team appointments will be shared as the organizational structure is finalized. 

The Board of Directors for Canada Packers has not been finalized. We are well advanced in recruiting high caliber independent directors. 

Full details regarding the governance structure for Canada Packers will be described in MIC and prospectus disclosure to be filed. 

Where can I access historical and pro forma financial information for Canada Packers?  

Initial estimates for LTM pro forma financial performance of key financial metrics were provided in the July 9th announcement press release and updated in the second quarter 2024 earnings call press release.  

Full pro forma financial information will be provided when we publish the MIC.