Canada's largest bakery business sold to Mexican company in $1.83B deal

Michael McCain, president of Maple Leaf Foods, arrives for a media briefing in Laval, Que., on Dec. 12, 2008. (THE CANADIAN PRESS/Ryan Remiorz)

TORONTO -- Canada Bread has struck an agreement to be acquired by one of the world's largest bread companies in a transaction valued at $1.83 billion.

Grupo Bimbo, based in Mexico, said Wednesday it will buy Canada's dominant breadmaker with the support of Maple Leaf Foods (TSX:MFI), which owns a 90 per cent stake in the operations.

What Grupo Bimbo gains from buying Canada Bread (TSX:CBY) is a position in the Canadian marketplace and the ownership of popular brands like Dempsters and Bon Matin.

"The company fits exactly within our strategic soft spot as a leader in its domestic market," Grupo Bimbo chief executive Daniel Servitje said in a conference call.

"(This is) a new market for Grupo Bimbo which helps strengthen our presence in the Americas and one that had grown steadily and with little volatility in terms of pricing."

The transaction also ends Maple Leaf Foods' pursuit of a buyer for the bakery division, which it announced last October.

Maple Leaf Foods is in the midst of a restructuring plan to improve the profits of its overall business, which is primarily focused on meat products. It has already sold various divisions and hopes to complete the process by next year.

The company will be paid about $1.65 billion for its stake, once it meets regulatory requirements, which include approvals under the Competition Act and Investment Canada Act, as well certain U.S. approvals. The transaction is expected to close in the second quarter.

The $72-per-share purchase price is about seven per cent above Canada Bread's recent stock value and 31 per cent higher than when it was put up for sale.

Analyst Bob Gibson at Octagon Capital Corp. said he was hoping for a $80-per-share price tag, which would've brought the overall transaction above $2 billion.

The hunt to sell Canada Bread was first announced last October, though at the time the company was only searching for potential suitors. Two Canada Bread factories were also closed last year -- in Grand Falls, N.B., and Edmonton.

Maple Leaf Foods has already sold its Rothsay rendering business, which handles edible and inedible animal by-products, to Darling International, which is based in Texas.

The Canadian company also reached agreements to sell its commercial turkey farms, hatchery operation and breeding farms to two Ontario-based companies.

"We've got a great plan in front of us, and we're having a very rocky road in transition," Michael McCain, Maple Leaf Foods president and CEO said in a conference call.

"I don't mean to minimize it, but it is transitional, and we're excited about the outcome when it's done."

After the transaction closes, Maple Leaf Foods will have about 12,000 employees in its meat operations.

Grupo Bimbo, which makes products under such brands as Sara Lee, Mrs. Baird's and Entenmann's, operates in the United States and 18 countries in Latin America, Europe and Asia.

The company, which trades on the Mexican stock exchange, previously acquired the U.S. fresh-baked-goods division George Weston Ltd. (TSX:WN) for US$2.5 billion in 2009.

Canada Bread shares were up more than seven per cent or $4.99 to $72.15 Wednesday afternoon on the Toronto Stock Exchange. Maple Leaf shares were down 16 cents or 1.01 per cent at $15.68.