SunOpta draws private equity interest, 2nd activist emerges-sources (updated)

SunOpta

25/07/2016 20:06

(Updates with share reaction) 
    By John Tilak and Lauren Hirsch 
    July 25 (Reuters) - Canadian organic food company SunOpta 
Inc  SOY.TO , already under pressure from U.S. hedge fund 
Tourbillon Capital Partners LP, is being prodded by a second 
activist shareholder to explore the sale of all or part of the 
company, according to sources familiar with the matter. 
    Canadian hedge fund West Face Capital, which pushed 
SNC-Lavalin  SNC.TO  to sell its AltaLink business for about 
C$3.1 billion in 2014, also wants SunOpta to look at board or 
management changes if sales don't materialize, said the sources 
who spoke on condition of anonymity.      
    West Face's move comes as SunOpta, whose brands include 
Nature's Finest and Sunrich Naturals, has received interest from 
private equity firms, said two sources familiar with the 
situation.      
    While some of Toronto-based West Face's demands are similar 
to Tourbillon's, the two hedge funds are not acting in concert, 
the sources said.  
    West Face, SunOpta's third biggest shareholder with a more 
than 8 percent stake, began the push about a year ago but has 
kept it private, one source said. Tourbillon, SunOpta's largest 
stakeholder, went public with a May 27 letter to the board and 
chief executive officer. 
    SunOpta and West Face declined to comment. 
    Investors have been disappointed with SunOpta's share price, 
which is down nearly 48 percent over the past year. Some 
shareholders are concerned about the debt level, the integration 
of acquisitions and SunOpta's sluggish performance in the 
high-growth organic foods market, the sources said. 
    After the Reuters report, SunOpta shares shot up as much as 
6.3 percent to C$7.10 before easing to C$6.92. Before the 
report, the stock was down about 2 percent. 
    Last month, SunOpta's board hired investment bank Rothschild 
Inc and law firm Davies Ward Phillips & Vineberg LLP to advise 
on strategic options and said it was in talks with its biggest 
shareholders.  urn:newsml:reuters.com:*:nL4N19J44B 
    SunOpta's debt jumped to $482.8 million in 2015 from $83 
million a year earlier after the acquisitions of Citrusource, 
Niagara Natural and Sunrise Growers. 
    A sale at less than C$8 per share is unlikely to be 
acceptable to some of the major shareholders, one source said, 
adding that an asset sale was more likely in the near term. 
    The stock was down 2.1 percent at C$6.54 on Monday. 
    SunOpta set ambitious goals in April for gross margin and 
sales, including raising its overall gross margin to between 14 
percent to 16 percent within three to five years from the 
current 11 percent, said Eric Gottlieb, an analyst at D.A. 
Davidson & Co. 
    "They've made all these promises throughout the years, and 
they haven't come through," he said. Now the shareholders' 
approach is, 'let me see you do it,'" he added.  
    A strategic buyer, such as grain handler Archer Daniels 
Midland Co  ADM.N , the food processor and commodities trader, 
or Bunge Ltd  BG.N , the agribusiness group, may be interested 
in buying SunOpta for its ingredient sourcing segment and then 
sell its consumer products division, Gottlieb said. 
    ADM declined to comment. Bunge could not be reached 
immediately for comment. 
 
 (Reporting by John Tilak in Toronto, Rod Nickel in Winnipeg, 
Lauren Hirsch and Michael Flaherty in New York; Editing by 
Jeffrey Benkoe) 
 ((john.tilak@thomsonreuters.com; 1-416-687-7918; Reuters 
Messaging: john.tilak.reuters.com@reuters.net)) 
 
Keywords: SUNOPTA WESTFACE/