BUSINESS

BACK TO BUSINESS

After spending 40 years building one food company, McCain is bidding $1.2 billion to buy another one

BRENDA DALGLISH March 27 1995
BUSINESS

BACK TO BUSINESS

After spending 40 years building one food company, McCain is bidding $1.2 billion to buy another one

BRENDA DALGLISH March 27 1995

BACK TO BUSINESS

BUSINESS

Before the bitter fight that ruptured their business partnership, Wallace and Harrison McCain managed to build a $3-billion, multinational frozen-food company with only a few disagreements between them. The brothers did, however, differ over public relations—specifically whether they should talk to the media about their company, McCain Foods Ltd. “It was one of the few things that we really disagreed on,” said Wallace last week, “and it started very early in our business, in the 1960s.” While Harrison was in favor of more openness, Wallace said, “I wasn’t sure it was the right thing for the company [in the] long term.” But last week it was publicity-shy Wallace who discussed that old dispute during an interview in the sleek Toronto offices of his high-powered public relations advisers, following a three-day binge of media attention surrounding his bid to take over Maple Leaf Foods Inc. ‘We argued it a lot and finally I told him: Tou’re on your own, do what you want,’ ” Wallace recalled. “Maybe he was right, I don’t know.”

Wallace’s new appreciation of the value of public relations has come about more out of necessity, however, than from a true change of heart. He summed up his feelings about a television interview last week by saying: “I’d rather be selling french fries.” His $1.2-billion bid for Maple Leaf Foods, the largest food processor in Canada, has moved Wallace from the sheltered world of privately owned, familyrun companies into the bright glare that falls on publicly traded companies like Maple Leaf. Despite his lack of experience, however, McCain, 64, handled the new attention with aplomb. He fended off charges of nepotism that arose from his plan to hire his two sons, Michael and Scott, at Maple Leaf; learned a quick lesson in political correctness after he implied during a television interview that only “housewives” shop for groceries; and appeared more amused than horrified that two books are being written about his family’s feud. “It’ll all die away,” he said, “after April 20.”

That is the day his takeover bid is set to expire. Although there are rumors that one or more competing bids for Maple Leaf are about to be launched, McCain seems confident that his offer, worth $15 a share, will win control of the company. Before he stepped forward, Maple Leaf shares were trading at around $12.50. Hillsdown Holdings PLC, which has owned 56 per cent of Maple Leaf Foods for five years, agreed to sell its shares

to Wallace unless a higher bid is made.

To finance the takeover, Wallace will invest between $100 million and $150 million of his personal wealth. The Ontario Teachers’ Pension Plan Board, which had supported Wallace’s efforts during the past two years to buy all or part of McCain Foods, is putting up $150 million (page 36). The rest of the cost of the takeover will be paid by stripping Maple Leaf of its cash reserves, which stood at $220 million at the end of 1994, and adding $540 million in long-term debt—which the TorontoDominion Bank is lending—to the company’s balance sheet.

Wallace insists that his proposed re-entry into the food industry will not be in direct com-

petition with his brother because Maple Leaf and McCain sell very few competing products. And for that reason, he says, there is no conflict of interest if he chooses to remain on the McCain board as a vice-chairman. McCain Foods built its business in frozen french fries, pizzas and fruit juices, while Maple Leaf makes and sells prepared meats as well as bakery goods such as Dempster’s breads, Monarch flour and grocery brands such as Tenderflake lard and Prime chicken.

Wallace noted that his plans for Maple Leaf include expanding its sales to the United States, South America and Asia—either by introducing Maple Leaf products to those markets or by taking over established food companies. In

After spending 40 years building one food company, McCain is bidding $1.2 billion to buy another one

addition, Wallace talked about the appeal of the Maple Leaf brand name and suggested that he might eventually reduce and consolidate some of the 70 or more brands that the company now sells. He also emphasized the need for cost reduction. “Being a world-class, low-cost producer of top quality products is absolutely imperative,” said Wallace.

In describing his plans for Maple Leaf, which turned in a consistent but unspectacular financial performance in 1994 with a profit of $76 million on revenues of $3.2 billion, Wallace sounded eager to get back to work. Indeed, he said his desire for a job is one of the reasons he wants to buy Maple Leaf. Wallace lost his position as co-chief

executive officer of McCain Foods last October when a majority of the family board that controls McCain Foods, led by his brother Harrison, voted to oust him from the job. Last month Harrison announced that he, too, would step down and turn the post of chief executive over to Howard Mann, a British food industry executive. Harrison and Wallace will keep their jobs as vice-chairmen of McCain Foods.

Wallace’s unilateral decision to appoint his son Michael, 36, to a senior management position as head of the company’s U.S. operations in 1990 has often been cited as the trigger that caused the brothers’ fight. But Wallace said that a bigger problem was his desire to keep on working at a time when Harrison, 67, wanted to reduce his workload. Harrison has had a heart attack and his wife, Billie, died of cancer last year. “I feel fine and as long as my health stays good, I want to continue,” Wallace said. “It’ll give me something to do, keep me out of mischief.”

Both men became famous for their prodigious energy and industriousness when they were in their 20s, working as salesmen for K.C. Irving, the late head of New Brunswick’s other great business empire. But Har-

rison suffered a heart attack in 1992 during surgery. He was in a coma for 10 days, and after that, Wallace claims, Harrison’s personality changed. Following that experience, the two broth1^ ers, who had been squabbling for years about how to handle succession, began a serious battle that came to public attention in 1993 when Wallace sought legal protection from Harrison’s efforts to have him thrown out of his job at the company.

The brothers’ relationship today is strained, but it is not as openly hostile as might be expected, given the derogatory comments both sides made about the other through 18 months of court battles. During a news conference last week about the Maple Leaf bid, Wallace went through verbal acrobatics to avoid mentioning McCain Foods by name. And he said that his relationship with Harrison can never be completely mended. “I don’t see how it can ever be the same again,” he said. “I’ve been hurt”

For his part, Harrison is conciliatory. He said that when he learned of the Maple Leaf bid he called to congratulate Wallace. “I hope he makes it, I really do,” said Harrison. However, he refused to compare McCain Foods and Maple Leaf, even though he and Wallace had carefully studied the company in the mid-1980s when they tried to take it over. Said Harrison: “Anything I’d say would be taken as a criticism.”

But despite his unceremonious ouster and his hurt feelings, Wallace still defends his brother over reports that Harrison is an unreasonable autocrat. In a recent article in Canadian Business magazine, Wallace’s wife, Margaret, who is also New Brunswick’s lieutenant-governor, maintained that Harrison is so domineering that he even dictated decorating decisions in her home. “My God, I couldn’t even decorate my house blue,” she said. “I came from a family that loved blue. I had picked china that was blue. Harrison hates blue. He likes green. So everyone decorated their house in green.” But Wallace, apparently unperturbed to this day by his brother’s strong opinions, defended Harrison last week. “Look, he has idiosyncrasies, I have idiosyncrasies,” said Wallace. “The facts in the story are true, but that never really bothered me.”

For now, the other loser in the McCain feud is Florenceville, N.B., a town of 700 on the edge of the Maine border where the McCain family has been growing and processing pota-

toes for more than 75 years. Last month, Harrison announced that the company's new CEO will be based in Toronto, where McCain Foods will open a global head office. And last week Harrison told Maclean’s that he, too, is thinking of buying a home in Toronto. Indeed, Harrison has been considering a head office move to Toronto for some time although Wallace wanted to stay in Florenceville.

Nevertheless, after he was removed from his job, Wallace moved to Toronto. For now, he is living in a luxury midtown condominium while house hunting. He said that he had hoped to live in the country until he learned that it would require a 45-minute commute twice a day. “That’s out,” he said. “In Florenceville, I could get to work in three minutes.” Even though their business partnership has ended, it seems that Harrison is still forcing Wallace into moves that he does not really want.

BRENDA DALGLISH