Mississauga-based SunOpta announced Monday it closed a deal with Pipeline last Friday for the Canadian firm’s organic and “specialty” soy and corn operations, which include five plants in the U.S. Midwest.

Of those, three are in southeastern Minnesota, at Hope, Ellendale and Blooming Prairie; one is at Cresco, Iowa, about 120 km southeast of Blooming Prairie; the other is at Moorhead, Minn., just across the Red River from Fargo, N.D.

The deal also includes a “multi-year” supply agreement in which Pipeline will provide “certain ingredients used in SunOpta’s consumer products business.”

SunOpta, meanwhile, said it will still own and run its other North American-based sourcing and supply operations, as well as Tradin Organic, its European-based international sourcing and supply operation, which deals in organic nuts, seeds, cocoa and coconut.

SunOpta’s remaining North American sourcing and supply business consists of sunflower and roasting operations, including its roasted snacks plant at Crookston, Minn., acquired when it bought sunflower processor Dahlgren and Co. in 2010.

The SunOpta corn and soy business “has a long history of supplying high-quality specialty, non-GMO and organic ingredients to the food industry,” John Ruelle, the company’s senior vice-president of raw material sourcing and supply, said in a release.

“We believe Pipeline Foods is well positioned in this space, which should serve the industry well and be positive for our transitioning employees.”

Minneapolis-based Pipeline launched in the fall of 2017 with plans to invest US$300 million to $500 million in the organic and non-GMO food and feed sector over the following three to five years.

To that end, the company has since set up regional offices in Winnipeg, St. Louis and Buenos Aires. It also bought grain elevators at Wapella and Gull Lake in southern Saskatchewan shortly after its launch.

Pipeline later in 2017 bought elevators at Altantic, Iowa and Lignite, N.D., the latter about 50 km southeast of Estevan, Sask. The company also started work that fall on a new grain storage and handling facility at Bowbells, N.D., about 30 km east of Lignite, and opened that terminal for business last October.

Pipeline CEO Eric Jackson, in Monday’s release, hailed the SunOpta deal as an “incredible opportunity to grow our business and expand the accessibility of organic and specialty grains in the U.S.”

Through the deal, he said, Pipeline is “merging the newest team in the sustainable agriculture supply chain business with the most tenured and respected team in the business, and creating something even better.”

SunOpta said it expects to provide more details and “expanded commentary” on the financial impact of the deal with Pipeline when it releases its fourth-quarter results on Tuesday. — Glacier FarmMedia Network

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The Mississauga-based, publicly traded company said Friday it has picked up an $85 million investment, in the form of exchangeable preferred shares, from Los Angeles-based Oaktree Capital Management.

The investment, which comes with an option to buy further shares over the next year, translates to a partially-diluted ownership stake of about 11.7 per cent for Oaktree, SunOpta said. Proceeds from the deal have gone to reduce SunOpta’s second lien debt and “increase financial flexibility.”

The company, whose consumer beverage and snack brands include Pure Nature, Sunrich Naturals and Nature’s Finest, operates 27 processing and packaging plants worldwide, mainly in the U.S. Its other Canadian assets include an office at Summerland, B.C. and a fruit snack processing plant at St. David’s, Ont.

SunOpta also markets raw organic commodities and ingredients including sunflower seed, corn, soybeans, fruits, vegetables, cocoa and coffee, and processes organic livestock feeds and birdseed.

SunOpta in June announced it would run a “review of strategic alternatives,” in view of investor pressure from hedge funds Tourbillon Capital Partners and West Face Capital to explore sales of some or all of the company.

SunOpta chairman Alan Murray said taking on Oaktree as a partner offered the “highest risk adjusted return from the many options available and evaluated by the board.” In reaching its deal with Oaktree, SunOpta said Friday it has “concluded” its strategic review.

However, the company said it would now work with Oaktree and another major shareholder, investment firm Engaged Capital, on a “thorough review of the company’s operations, management and governance.”

SunOpta said Friday it expects to offer an update on that review when it releases its third-quarter financials, plus a new “mid-range” plan outlining “performance improvements and cost savings to be realized in 2017.”

The company’s board has also named two independent directors of Oaktree’s choosing, including Dean Hollis, the chairman of Oaktree-backed AdvancePierre Foods and a former president of ConAgra’s consumer foods division, and Al Bolles, a former ConAgra chief technology and operations officer.

Brendan Springstubb, a principal at California-based Engaged Capital, will also join the SunOpta board. Douglas Greene, founder of New Hope Natural Media and an eight-year member of SunOpta’s board, has quit effective Friday, the company added.

Oaktree managing director Matt Wilson on Friday described SunOpta as “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.”

“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,” Murray said. — AGCanada.com Network

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Canadian hedge fund West Face Capital, which pushed SNC-Lavalin to sell its AltaLink business for about $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 eight per cent 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 per cent 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 per cent to $7.10 before easing to $6.92. Before the report, the stock was down about two per cent.

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.

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 $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 per cent at $6.54 on Monday.

SunOpta set ambitious goals in April for gross margin and sales, including raising its overall gross margin to between 14 per cent to 16 per cent within three to five years from the current 11 per cent, 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, the food processor and commodities trader, or Bunge Ltd, 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.

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Mississauga, Ont.-based SunOpta’s share price jumped 26 per cent after the US$4 billion hedge fund asked it to hire an investment bank to look at all ways to increase shareholder value, according to the letter which was in a public filing.

Tourbillon, SunOpta’s biggest investor with a 9.9 per cent stake, said it is going public with its request now after months of private discussions because it worries that management and the board may not be sufficiently committed to boosting the company’s value.

“Simply put, we believe SunOpta can become a more valuable business as a part of a larger enterprise,” Jason Karp, who runs Tourbillon, wrote, according to the letter which was filed with the U.S. Securities and Exchange Commission.

Tourbillon first bet on the Canadian company roughly six months ago. Karp said it has been frustrated by a sagging share price and the company’s failure to turn strong products and services into a “thriving business with an attractive public market valuation.”

The fund said it could eventually push for changes to the board and management if business does not pick up. It also said it would be ready to help if the company wanted to pursue a management buyout, acknowledging that “tough changes may be best addressed in a private setting.”

SunOpta’s share price surged 26.7 per cent to close at $4.84 on Friday and continued to climb some two per cent in after-hours trading. Over the last six months, however, the stock remained down 32 percent.

The company said it will “review Tourbillon’s suggestions and evaluate them on the basis of what is in the best interest of all shareholders.” It also said it “remains focused on creating efficiencies (and) improving operational excellence.”

SunOpta is a leading global organic food company specializing in sourcing, processing and packaging of natural and certified organic food products.

Other big investors in SunOpta include West Face Capital, Daruma Capital Management and Jennison Associates.

SunOpta’s sinking share price has hurt Tourbillon’s returns. The firm, founded by Karp, who once worked for Steven A. Cohen’s SAC Capital Advisors, gained 10 per cent in 2015 when most funds lost money. This year it is off roughly 14 per cent, an investor said.

— Svea Herbst-Bayliss is a Reuters correspondent based in Boston.

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