Canada: Food Report 2016: Trends In The Food, Beverage And Agribusiness Sector

Introduction

Since the early part of this century, the fast-paced development of Alberta's oil sands and the push for more pipelines across the country have driven Canada's economic fortunes. Indeed, the Toronto Stock Exchange is one of the most carbon-intensive exchanges in the world — with over 25 per cent market capitalization in the oil and gas sector. Changes in energy markets (including booming domestic production in the U.S. and decreasing global demand) have depressed energy prices, and the effects are felt in the broader Canadian economy. We are optimistic that the Canadian food, beverage and agribusiness sector presents a viable and attractive alternative for investors today for a safe harbour from the upheaval in global energy markets. As a northern latitude area, the Canadian Prairies are expected to experience temperature increases by a multiple of global averages, which in turn increases growing seasons. These environmental shifts are also expected to increase crop yields and the diversity of crops that can be cultivated. We anticipate Canada's position to continue to improve as a lead global exporter as it benefits from improving agricultural conditions in the Prairies and increasing global demand.1

In 2015, the Canadian food and agribusiness sector was once again the subject of a number of high-profile transactions (see Notable Transactions, page 2). Canada continues to be a leading exporter, and a significant importer, of agricultural and agri-food products. Similarly, farmland has been a strong asset, and in recent years, we have noted increased investments in Canadian farmland assets by financial investors (e.g., Middle Eastern sovereign wealth funds and the Canada Pension Plan).

As has become customary in the last four issues of this report, in this issue, we once again present an overview of significant global and Canadian M&A transactions in the food, beverage and agribusiness sectors. We also present four feature articles. The first article highlights the push to organic pesticides. The second provides a brief primer on the regulation of the dairy industry in Canada. In our third article, we provide a short overview of the Canadian farm debt market. Finally, we conclude with a summary and some reflections on the proposed Trans-Pacific Partnership Agreement and its ramifications for the Canadian agribusiness sector.

This report was prepared by the Blakes Food, Beverage & Agribusiness group based on non-confidential information acquired through our practice and from a review of public information. The information was gathered in the first three quarters of 2015. Our goal in preparing and presenting this report is to highlight certain trends, developments and opportunities we believe will have an impact on the food, beverage and agribusiness sector going forward.

The information contained in this report is intended for general informational purposes only and does not constitute legal advice. While care has been taken to ensure the information herein is accurate, we make no representations regarding its accuracy. This report should not be relied on to replace professional advice, legal or otherwise, relating to any specific circumstances.

Notable Transactions

Featured Canadian Transactions

Cott Acquires DS Services

On December 12, 2014, Canada-based Cott Corporation (Cott) acquired U.S.-based DS Services Holdings, Inc. (DS Services) from Crestview Partners, L.P. DS Services, a leading bottled water and coffee direct-to-consumer services provider, was bought by Cott for a value of US$1.25-billion. The purchase included the assumption of an undisclosed amount in liabilities and the issuance of Cott preferred shares. Following the acquisition, Cott is now one of the world's largest producers of beverages on behalf of retailers, brand owners and distributors. By acquiring DS Services, Cott has gained access to one of the broadest distribution networks in the United States.

Vega Sold to WhiteWave Foods

On June 9, 2015, Denver-based WhiteWave Foods Company (WhiteWave) announced that it had agreed to acquire Vega, a Vancouver-based nutrition company. Founded in 2004 and with sales of US$100-million in 2014, Vega was sold by its founding president, Charles Chang, and VGM Equity Partners for US$550-million. It is expected that Vega will strengthen WhiteWave's share of the natural and organic dairy market, adding to WhiteWaves's popular product line of Silk Milk alternatives.

SunOpta Acquires Sunrise Growers

On July 31, 2015, SunOpta Inc. (SunOpta) made a strategic acquisition of Sunrise Holdings Inc. (Sunrise Growers) from an investor group led by Paine & Partners LLC. The transaction was valued at US$450-million. U.S.-based Sunrise Growers' market share of conventional and organic frozen fruit complements the Canadian-based SunOpta, a leading global company focused on organic and non-genetically modified and specialty foods.

G3 Acquires Interest in Canadian Wheat Board

On April 15, 2015, G3 Global Grain Group (G3) acquired a 50.1 per cent stake in the Canadian Wheat Board (CWB), a Winnipeg-based grain trader. G3 purchased the interest from the Government of Canada for a price of US$250-million. G3 is a joint venture between the U.S. agricultural conglomerate Bunge Limited and the Saudi Agricultural and Livestock Investment Company. The CWB's grain handling and marketing assets were combined with those of Bunge Canada Ltd., a unit of Bunge Ltd., to form a new company called G3 Canada Ltd., a coast-to-coast grain enterprise that provides a path for farmers to deliver their product from Canadian fields to global markets. The remaining 49.9 per cent equity of the new enterprise is held in trust for, and allocated to, participating Canadian grain farmers (at no cost to the farmers), with G3 having the right to buy the farmers' stakes in the future at fair market value.

Pinnacle Foods Acquires Garden Protein International

On November 14, 2014, the U.S.-based Pinnacle Foods Inc. (Pinnacle) acquired Garden Protein International Inc. (Garden) from Garden's founder and president, Yves Potvin, and TSG Consumer Partners LLC. Pinnacle paid a purchase price of US$153.90-million for the Canadian-based Garden, which is the manufacturer of the plant-based protein brand, gardein", one of the fastest growing frozen health and wellness brands on the U.S. market. The acquisition adds to Pinnacle's position as a leader in the shelf-stable and frozen-foods segments.

Saputo Bakery Acquired by Canada Bread

On February 2, 2015, Canada Bread Company, Limited (Canada Bread), a subsidiary of Mexico's Grupo Bimbo S.A.B. de C.V. (Grupo Bimbo), acquired the entire share capital of Saputo Bakery, Inc., a subsidiary of Montréal-based Saputo, Inc., for a purchase price of US$103.06-million. Canada Bread, itself having been acquired by Grupo Bimbo in May 2014, is a leading producer and distributor of packaged fresh bread and bakery products. Saputo Bakery, Inc., now operating under the name Vachon Bakery Inc., will continue to be a leading producer of snack cakes in Canada, bringing together its well-positioned brands and complementing Canada Bread's product portfolio and its distribution and manufacturing footprint.

Viterra Agrees to Acquire TRT-ETGO

On August 27, 2015, Viterra Inc. (Viterra), a unit of Glencore Xstrata PLC, signed a purchase agreement to acquire the shares of Twin Rivers Technologies Holdings Entreprises De Transformation De Graines Oleagineuses Du Quebec Inc. (TRT-ETGO). Viterra, one of Canada's grain industry leaders, bought TRT-ETGO from Twin Rivers Technologies LP, which was owned by Felda Global Ventures Holdings Berhad (FGV), for US$142.59-million. TRT-ETGO owns a large oilseed processing plant in Eastern Canada, in operation since 2010, which produces vegetable oil for the food and industrial markets, as well as meal for the livestock industry.

Featured Global Transactions

Heinz in Mega-Merger with Kraft

On July 2, 2015, the Kraft Heinz Company (Kraft Heinz) announced the successful completion of the merger between Kraft Foods Group, Inc. (Kraft) and the H.J. Heinz Company (Heinz), a historic transaction that brought two iconic brands together and combined two unparalleled product portfolios. Heinz, which was jointly owned by Berkshire Hathaway Inc. and 3G Capital Partners Ltd., merged with Kraft through a stock swap transaction valued at US$46.106-billion. This transaction value includes Heinz's offer of US$36.331-billion in its shares, based on a market capitalization on the last full trading day prior to the announcement of the deal, as well as US$16.5 in cash dividend per common share, restricted stock unit and performance unit. Following the merger, the original Heinz and Kraft shareholders each owned 51 per cent and 49 per cent, respectively, of Kraft Heinz. Together, Kraft Heinz becomes the third-largest food and beverage company in North America and the fifth-largest in the world.

Smucker's Acquires Big Heart Pet Brands

On March 23, 2015, The J.M. Smucker Company (Smucker's) completed its acquisition of Big Heart Pet Brands (Big Heart) from Kohlberg Kravis Roberts & Co. L.P., Vestar Capital Partners, Inc. and Centerview Partners Holdings LLC. The value of the transaction, at US$3.17-billion, does not include an additional US$2.5-billion in net debt that was paid off by Smucker's at the close of the transaction. Based in San Francisco, Big Heart is a leading producer, distributor and marketer of premium-quality, branded pet food and snacks in the United States. The acquisition complements Smucker's role as a leading marketer and manufacturer of consumer food and beverage, pet food and snacks in North America, adding to its US$8-billion annual sales.

Nomad Acquires Iglo

On June 1, 2015, Nomad Holdings Limited (Nomad), of the British Virgin Islands, completed its acquisition of Iglo Foods Holdings Limited (Iglo) with a purchase price of US$2.81-billion. Upon completion of the acquisition from Permira Advisers LLP, Nomad changed its name to Nomad Foods Ltd. (Nomad Foods). As one of Europe's leading frozen-food companies, the U.K.-based Iglo adds its core brands of Iglo, Birds Eye and Findus to Nomad Foods.

Sime Darby Plantation Acquires New Britain Palm Oil

On March 3, 2015, Sime Darby Plantations Sdn Bhd (Sime Plantation), the plantation arm of Malaysian conglomerate Sime Darby Bhd (Sime Darby), completed the acquisition of Papua New Guinea-based New Britain Palm Oil Ltd. (New Britain). New Britain is one of the world's largest fully integrated producers of sustainable palm oil, palm seeds and sugarcane. Sime Plantation paid US$1.708-billion to acquire New Britain from Kulim (Malaysia) Bhd, adding its 135,000 hectares of land to Sime Plantation's total land bank, which now brings Sime Planation's land holdings to nearly one-million hectares, across five countries.

EWOS Sold to Cargill

On August 17, 2015, U.S.-based Cargill, Inc., agreed to acquire EWOS AS (EWOS) from Altor Fund III and Bain Capital Europe III for US$1.502-billion. The purchase of EWOS, a Norwegian-based global leader in salmon nutrition, gives Cargill entry into the salmon market and strengthens Cargill's animal nutrition business as a leading player in the growing salmon feed industry, one of the most advanced segments in global aquaculture. The transaction included the acquisition of seven feed manufacturing facilities in Norway, Chile, Canada, Scotland and Vietnam, as well as two research and development centres in Norway and Chile.

Renhe Commercial Holdings Acquires Yield Smart

On June 9, 2015, Renhe Commercial Holdings Company Ltd. (Renhe) entered into an agreement to acquire the entire share capital of Yield Smart Limited (Yield Smart) for US$1.485-billion. Yield Smart is a fresh fruit and vegetable wholesaler and retailer, which operates eight markets in six cities across China. Renhe bought Yield Smart from New Amuse Ltd., a subsidiary of Shouguang Dili Agri-Products Group Company Limited, in a stock swap transaction, where the consideration consisted of Renhe assuming US$190.9-million in liabilities in addition to the issuance of US$1.295-billion worth of Renhe's ordinary shares.

Olam Buys Archer Daniels-Midland Cocoa

On December 15, 2014, Olam International Limited (Olam), a commodity trader controlled by Singapore's state investment firm, agreed to acquire Archer-Daniels-Midland Co.'s cocoa business (ADM) for US$1.3-billion. The acquisition will make Olam one of the world's top-three processors of cocoa, with the combined entity having 16 per cent of the world's processing capacity and access to 20 per cent of the global supply. On June 11, 2015, the European Commission approved the acquisition, concluding that it raised no competition concerns.

JBS Australia Acquires Primo

On March 30, 2015, JBS Australia Pty Limited (JBS Australia), the Australian arm of the Brazilian food processor JBS S.A., acquired the Primo Group (Primo) for US$1.256-billion. Primo, Australia and New Zealand's largest ham, bacon and small-goods producer, has more than 4,000 employees, five production units, seven distribution centres, and 30 retail outlets. The deal is part of JBS S.A.'s global extension from fresh meat into the value-added processed-foods industry and is expected to provide a launching pad to export protein to Asia.

MOM Brands Bought by Post

On May 4, 2015, Post Holdings, Inc. (Post) completed its acquisition of the privately held MOM Brands Company (MOM Brands) for US$1.18-billion. Post is a U.S.-based consumer packaged goods holding company, and MOM Brands has over a century of experience and is best known for selling lower-priced cereals. The acquisition results in Post having roughly 18 per cent of the ready-to-eat cereal sales in the U.S., compared to Kellogg and General Mills' combined market share of 65 per cent.

Arca Continental and Corporacion Lindley Form Alliance

On September 10, 2015, Arca Continental S.A.B. de C.V. (AC) and Corporacion Lindley S.A. (CL) signed a definitive agreement to integrate their operations. The deal involved AC acquiring a 53.16 per cent interest in CL at a price of US$758.771-million. CL, the sole Coca-Cola bottler in Peru, and AC, with operations in Mexico, Ecuador, Argentina and the U.S., will integrate with AC to form a company with revenues of roughly US$5.4-billion. The transaction was approved by The Coca-Cola Company.

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Footnotes

1 Jeff Rubin, The Carbon Bubble: What Happens to Us When It Bursts, Random House Canada, Toronto (2015).

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