July 28, 2011 / 12:32 PM / in 6 years

UPDATE 4-Maple Leaf Foods adopts rights plan, profits rise

* CEO to become biggest shareholder

* Shares give up earlier gains

* Diluted EPS C$0.16 vs year-earlier C$0.02

* Adjusted EPS C$0.30 beats estimates (Updates with further details, company comments)

By Rod Nickel

WINNIPEG, Manitoba, July 28 (Reuters) - Maple Leaf Foods (MFI.TO) said on Thursday it had adopted a shareholder rights plan and that its chief executive would acquire nearly a third of its shares, prompting speculation a takeover attempt could be in the works.

The Canadian food processor denied that the poison pill was in response to any actual or anticipated transaction, saying it merely replaced a rights plan that expired last year.

The moves also follow a standoff with an activist investor earlier this year and last year’s exit of Ontario Teachers’ Pension Plan, its biggest shareholder at the time.

“We go forward with a board and management team that are intent on building shareholder value,” said James Hankinson, a director and chairman of a special board committee.

Maple Leaf shares initially rose nearly 3 percent on the Toronto Stock Exchange before giving up gains later in the session to end down 16 Canadian cents. or 1.5 percent, at C$10.91.

The surprising moves, announced shortly after the company reported a surge in quarterly profit, amount to CEO Michael McCain taking a firmer grip on Maple Leaf, which has not been the subject of previous takeover chatter, Octagon Capital analyst Robert Gibson said.

“I read into it that something’s going on,” he said.

Former Maple Leaf Chairman Wallace McCain, Michael McCain’s father and an investor in McCain Capital, died earlier this year, and the share transfer was in accordance with his wishes, the company said.

“It reflects my very strong belief in the company,” Michael McCain said in a conference call with analysts.

Maple Leaf, a top meat processor and baker, could present an attractive takeover target, with its shares considered undervalued and having embarked on an ambitious plan to modernize operations, Gibson said.

Maple Leaf shares have risen nearly 19 percent since last year, with the biggest climb coming after activist investor West Face Capital bought a stake. But they have not regained the value they held before a 2008 deli-meats recall due to a deadly listeria outbreak that killed more than 20 people.

The shareholder rights plan, which takes effect immediately, was designed to give the board and shareholders time to consider any acquisition of 20 percent or more of the company, Maple Leaf said.

Maple Leaf has said it is concerned about losing market share to its big U.S. meat-processing rivals, including Smithfield Foods SFD.N and Hormel (HRL.N).

The company said Michael McCain would buy all shares at an undetermined time held by McCain Capital Corp, the company’s largest shareholder, which is already controlled by McCain’s family. That will see the CEO own 31.9 percent of total shares outstanding.

Earlier this year Toronto-based Maple Leaf gave a seat on the board to West Face Capital, which had been critical of the company’s corporate governance.

That move came months after the resignation of two board members and the exit of Ontario Teachers’ Pension Plan.

Second-quarter net profit jumped nearly fivefold, helped by price increases and cost-cutting, Maple Leaf said.

The company earned C$24.6 million ($25.9 million), or 16 Canadian cents a share, up from C$4.9 million, or 2 Canadian cents a share, a year earlier.

The latest results included costs of C$16.6 million for closing some processing plants.

Excluding these and other items, adjusted earnings of 30 Canadian cents a share beat analysts’ average estimate of 21 cents, according to Thomson Reuters I/B/E/S.

Maple Leaf raised prices for its products, which include Schneiders meats and Dempster’s bread, saying the cost of raw materials continues to rise.

Sales fell 3 percent to C$1.24 billion, due mainly to business divestitures, but in line with expectations.

$1=$0.95 Canadian Additional reporting by Bhaswati Mukhopadhyay in Bangalore; editing by Peter Galloway and Rob Wilson

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