SunOpta Inc. (Nasdaq:STKL) (TSX:SOY), a leading global company focused on organic, non-genetically modified and specialty foods, today announced that it has entered into an agreement with funds managed by Oaktree Capital Management, L.P., a leading global alternative investment management firm. Oaktree is an experienced investor in the consumer and retail industry, with a track record of driving growth in complex consumer businesses, including AdvancePierre Foods, Campofrío Food Group and Diamond Foods. In reaching this agreement with Oaktree, SunOpta has concluded the previously announced review of strategic alternatives for the Company.
Under the agreement, Oaktree invested $85 million in SunOpta in the form of exchangeable preferred shares. Proceeds from the investment have been used to reduce the Company’s 2nd lien debt and to increase financial flexibility.
In partnership with representatives of Oaktree and with representatives of Engaged Capital, SunOpta is conducting a thorough review of the Company’s operations, management and governance, with the objective of maximizing the Company’s ability to deliver long-term value to its shareholders.
The Company expects to provide an update on these efforts in conjunction with the Company’s third quarter earnings release, along with an updated mid-range plan which will include performance improvements and cost savings to be realized in 2017.
As announced on June 27, 2016, the SunOpta Board of Directors hired independent financial and legal advisors to support a review of the Company’s operating plan and evaluate a complete range of strategic and financial actions that SunOpta could undertake to maximize shareholder value. This review was comprehensive in its evaluation of all potential alternatives.
“After concluding a comprehensive review of strategic and financial alternatives, we are excited to have a partner in Oaktree that truly appreciates SunOpta’s unique position in the market and the potential value that can be created for all our shareholders through performance improvement and accelerated growth,” said Alan Murray, Chairman of the Board of SunOpta. “Given Oaktree’s deep industry knowledge and operational expertise, we believe they are the ideal partner for SunOpta as we seek to strengthen the company’s operations in a way that can reduce operational volatility and realize sustainable growth and value creation. We believe this strategic option provides the highest risk adjusted return from the many options available and evaluated by the Board.”
“With its strong and diverse portfolio of products and having recently undergone a period of significant investment in the business, we believe SunOpta has a substantial opportunity for growth in the rapidly expanding market for healthy and organic foods,” said Matt Wilson, Managing Director and Co-Portfolio Manager of Oaktree. “SunOpta is a natural fit for Oaktree given our experience in the consumer and food industries, and we see a significant opportunity to provide strategic, operational and financial support that will accelerate the Company’s value-enhancing initiatives and position it for long-term success.”
In concert with today’s announcement, SunOpta is also announcing significant enhancements to the Company’s corporate governance. First, the Board of Directors has appointed two Oaktree-nominated independent directors, Dean Hollis and Al Bolles, Ph.D., to the Board. Both appointees bring extensive sector experience. Mr. Hollis is a Senior Advisor at Oaktree with highly relevant sector experience as the Chairman of the Board of AdvancePierre Foods and the former President and Chief Operating Officer of the Consumer Foods Division of ConAgra Foods and former Chairman of Boulder Brands. Mr. Bolles has demonstrated leadership across multiple organizations in global innovation, research and development and supply chain management, most recently as the former Executive Vice President, Chief Technology & Operations Officer of ConAgra Foods.
Additionally, the Board has also appointed Brendan Springstubb of Engaged Capital to the Board. Engaged Capital is the Company’s second-largest shareholder and has extensive investment experience in the healthy living industry. The Board has committed to a further review of governance and leadership with a particular focus on continuing to add independent directors with significant operating and supply chain expertise in the food industry. The Board would expect to announce additional changes shortly. Concurrent with these appointments, Douglas Greene, a pioneer in the natural foods industry who has served on the SunOpta board for eight years, has resigned from the Board, effective today.
“On behalf of the Board, I would like to thank Doug for all his hard work over the years and his dedication to SunOpta,” said Alan Murray. “We would also like to welcome Dean, Al and Brendan to the Board. The company will benefit greatly from their respective industry and capital markets experience and we look forward to their contributions.”
Oaktree is investing in the company by purchasing $85 million of newly created Series A exchangeable preferred shares issued by SunOpta Foods Inc. as well as the right to purchase up to 3 million shares of SunOpta common stock in the open market for a period of one year. The Series A Preferred is immediately exchangeable into shares of the Company’s common stock at an initial exchange price of $7.50 per share and pays a cumulative dividend of 8% per year that may be paid-in-kind or cash at SunOpta’s option. This exchange price represents a 80.3% premium to the closing price of US$4.16 per share on June 24, 2016, the day before the strategic review was announced, and a 12.1% premium to the 60-day average closing price of US$6.69 per share. The Series A Preferred cumulative dividend will increase from 8% per year to 12.5% beginning in the tenth year. The agreement also entitles Oaktree to designate two nominees for election to SunOpta’s Board of Directors. Oaktree will be entitled to vote the Series A Preferred with the common shares on an as-exchanged basis. The Series A Preferred constitute on an as-exchanged basis a partially diluted ownership level of approximately 11.7% of the company. Currently, Oaktree’s ownership is subject to a 19.99% cap under the agreement unless and until shareholder approval is obtained to remove the cap.
Additional information regarding the investment will be included in a Form 8-K to be filed by the Company with the Securities and Exchange Commission. In connection with the transaction, SunOpta intends to rely on the exemption set forth in Section 602.1 of the TSX Company Manual which provides that the TSX will not apply certain of its requirements to issuers whose shares are listed on another recognized stock exchange such as the Nasdaq.
Rothschild Inc. is acting as financial advisor to SunOpta and Davies Ward Phillips & Vineberg LLP and Stoel Rives are acting as its legal advisors. Oaktree is represented by Kirkland & Ellis LLP and Stikeman Elliott LLP.
About SunOpta Inc.
SunOpta Inc. is a leading global company focused on organic, non-genetically modified and specialty foods. The Company specializes in the sourcing, processing and packaging of organic and non-GMO food products, integrated from seed through packaged products, with a focus on strategic vertically integrated business models. The Company’s organic and non-GMO food operations revolve around value-added grain-, seed-, fruit- and vegetable-based product offerings, supported by a global sourcing and supply infrastructure.
About Oaktree
Oaktree is a leader among global investment managers specializing in alternative investments, with $98 billion in assets under management as of June 30, 2016. The firm emphasizes an opportunistic, value-oriented and risk- controlled approach to investments in distressed debt, corporate debt, control investing, convertible securities, real estate and listed equities. Headquartered in Los Angeles, the firm has over 900 employees and offices in 18 cities worldwide. For additional information, please visit Oaktree’s website at www.oaktreecapital.com.
About Engaged Capital
Engaged Capital, LLC was established in 2012 by a group of professionals with significant experience in activist investing in North America and was seeded by Grosvenor Capital Management, L.P., one of the oldest and largest global alternative investment managers. Engaged Capital is a limited liability company owned by its principals and formed to create long-term shareholder value by bringing an owner’s perspective to the managements and boards of undervalued public companies. Engaged Capital manages both a long-only and long/short North American equity fund. Engaged Capital’s efforts and resources are dedicated to a single investment style, “Constructive Activism” with a focus on delivering superior, long-term, risk-adjusted returns for investors. Engaged Capital is based in Newport Beach, California. Additional information can be found at www.engagedcapital.com.
