Dive Brief:
- SunOpta, a Canadian natural and organic food manufacturer, saw its shares rise 26.7% on Friday after a letter included with a public filing confirmed that its largest shareholder, hedge fund Tourbillon Capital Partners, had requested that the company hire advisers to deliver better value to shareholders, including a potential sale.
- Tourbillon, which holds a 9.9% stake, said SunOpta had failed to achieve desired results, so the fund would potentially encourage a shakeup of the board and upper management if that performance continues. Tourbillon also said it may back an MBO.
- SunOpta said in a statement it had been talking to Tourbillon for "several months" and "appreciates constructive input from all shareholders." The company highlighted major changes it had undergone in the past year, including the acquisition of Sunrise Growers, the sell-off of its industrial minerals business, and a "more deliberate focus" on boosting its natural and organic private label portfolio.
Dive Insight:
A sale of SunOpta could be very appealing to the right buyer. Around the time of announcing pricing details for its underwritten public offering in late September, the company's stock started tanking, rising again in December, and steadily declining ever since until Tourbillon's letter was revealed last week. In other words, SunOpta's stock price is ripe for a buyout.
SunOpta is also far from hitting its peak profitability while its top line continues to grow, due in part to acquisitions like Sunrise, a frozen fruit private label maker that increased SunOpta's scale by about 30%, and organic and non-GMO snack maker Niagara Natural Fruit Snack Company Inc. Though first-quarter sales increased by 28.6%, SunOpta's significant margin decline led to a net loss of nearly $10 million for the quarter.
A strategic buyer or investment firm could use steep cost-cutting to make SunOpta a more viable and profitable competitor in the natural and organic space.
But who might that buyer be? 3G Capital has been active in food and beverage and tends to go after over cost-cutting opportunities like this, but SunOpta is likely too small to be on 3G's radar. While SunOpta did sell off its industrial minerals business to focus on food, it may still be too unwieldy for some strategic investors.
Instead, SunOpta could split itself, with its ingredients business going to a manufacturer like ADM or Cargill. Its private-label business could then be picked up by either another private-label company, such as TreeHouse Foods, or a natural and organic consumer-facing company like Hain Celestial or WhiteWave Foods.