SunOpta Inc. (“SunOpta” or the “Company”) (Nasdaq:STKL)
(TSX:SOY), a leading global company focused on plant-based foods
and beverages, fruit-based foods and beverages, and organic
ingredient sourcing and production, today announced that following
a review and analysis conducted by a special committee of
independent directors (the “Special Committee” ) of its board of
directors (the “Board”), it has entered into a financing agreement
with funds managed by Oaktree Capital Management, L.P. (“Oaktree”)
and Engaged Capital, LLC (“Engaged”), leading alternative
investment management firms, which invest in companies with strong,
defensible franchises.
Under the agreement, Oaktree and Engaged will invest up to a
total of US$60 million in SunOpta in the form of exchangeable
preferred shares. Proceeds from the equity investment will be used
primarily to invest in the Company’s plant-based foods and
beverages business, principally to add capacity via capital
projects and to provide incremental liquidity given the current
general economic uncertainty.
"Our plant-based food and beverage business is the growth engine
of the Company delivering outstanding revenue and EBITDA growth. In
2019, we grew revenue 15% and gross profit 45% in plant-based foods
and beverages, and we are confident in the long-term growth
potential of this segment. We are making significant investments in
this business now to ensure that we can continue to drive
aggressive growth in 2021 and beyond. After concluding a
comprehensive review of financial alternatives involving a Special
Committee of the Board, we are excited to extend our partnership
with Oaktree and Engaged. They truly appreciate SunOpta's unique
position in the market and the potential value that can be created
for all of our shareholders through accelerated growth. We believe
this strategic option provides the highest risk-adjusted return
from the many options evaluated by the Special Committee,” said Joe
Ennen, Chief Executive Officer of SunOpta.
Summary of the Financing
Oaktree and Engaged have committed to purchase up to US$60
million of newly created Series B exchangeable preferred shares to
be issued by the Company’s wholly-owned subsidiary, SunOpta Foods
Inc. (the “Series B Preferred”) in two tranches. The first tranche
consists of US$30 million of Series B-1 Preferred to be issued on
or about April 24, 2020, subject to satisfaction of certain
customary conditions of closing. The Series B-1 Preferred to be
issued in the first tranche will be immediately exchangeable into
shares of the Company's common stock at an initial exchange price
of US$2.50 per share, which represents a 23% premium to the closing
price of US$2.03 per share on April 15, 2020. The Series B-1
Preferred constitute 12.0 million shares as-converted, and on an
as-exchanged basis, an ownership level of approximately 12.0%
(excluding any conversion of the previously issued 2016 Series A
preferred shares) of the Company based on 88.3 million common
shares outstanding.
In addition, the Company has the option to require that Oaktree
and Engaged purchase a second tranche of the Series B-2 Preferred
for up to US$30 million by giving notice to Oaktree and Engaged on
or before July 15, 2020. The initial exchange price of the Series
B-2 Preferred will be equal to a 30% premium to the 15-day volume
weighted average stock price through the trading day immediately
prior to the notice date, with an exchange price floor of US$2.00
per share and an exchange price cap of US$3.50 per share. Should
the full amount of the second tranche of US$30 million be issued by
the Company, the Series B-2 Preferred would constitute 8.6-15.0
million shares as-converted based on the US$2.00 to US$3.50
conversion price range, and on an as-exchanged basis, an
incremental ownership level of approximately 7.9-13.0% (excluding
any conversion of the previously issued 2016 Series A preferred
shares) of the Company based on 88.3 million common shares
outstanding.
Both the Series B-1 and B-2 Preferred (if issued) will initially
pay a cumulative dividend of 8% per year that may be paid-in-kind
or cash at SunOpta's option. At the end of the Company’s third
quarter in 2029, the dividend will increase from 8% per year to 10%
and will be payable only in cash. As part of the transaction, the
Company has committed to nominating a designee of Engaged to serve
on the Company’s Board, subject to certain conditions. Engaged has
the right to nominate one director candidate to the Company’s
Board. Oaktree continues to have the right to nominate two director
candidates to the Company’s Board.
Oaktree and Engaged will be entitled to vote the Series B
Preferred with the common shares on an as-exchanged basis, subject
to a permanent 19.99% voting cap. As a result of the voting cap,
each of Oaktree and Engaged will only be able to vote its Series B
Preferred to the extent that, when taken together with any other
voting securities it controls, such votes do not exceed 19.99% of
the votes eligible to be cast by all security holders of the
Company. Each of Oaktree and Engaged will also be subject to a
permanent exchange cap which will limit the number of common shares
issuable to it on its exchange of the Series B Preferred to the
extent such investor’s beneficial ownership following such exchange
would exceed 19.99% of the voting securities of the Company then
outstanding. In addition, Oaktree and Engaged have agreed to
protective covenants relating to a change of control of the
Company. The covenants will prohibit joint action between Oaktree
and Engaged, and locking up (in the case of Engaged) or locking up
or tendering (in the case of Oaktree) to a change of control
transaction that has not been approved by a majority of the
independent members of the Board. Oaktree and Engaged will also be
prohibited from any disposition that results in the acquirer
beneficially owning more than 19.99% of the Company’s then
outstanding common shares, subject to specified exceptions.
Additional information regarding the terms of the financing will
be included in a Current Report on Form 8-K to be filed by the
Company with the Securities and Exchange Commission and a material
change report to be filed by the Company on www.sedar.com.
Special Committee
The Special Committee was established by the Board to review,
evaluate and consider the proposed terms of the Series B Preferred
financing, as well as other alternatives available to the Company,
and determine if the Series B Preferred financing is in the best
interests of the Company having regard to the interests of minority
shareholders. Following an evaluation of the Series B Preferred
financing proposal and other potential financing alternatives, the
Special Committee concluded that the Series B Preferred financing,
subject to certain amendments, was in the best interests of the
Company having regard to the interests of the minority
shareholders. Accordingly, the Special Committee and its financial
and legal advisors engaged in extensive negotiations with each of
Oaktree and Engaged with respect to various aspects of the
financing, including the proposed pricing. Having received the
unanimous recommendation of the Special Committee, the Board
(excluding interested directors, who did not participate in
deliberations) determined that the financing is in the best
interests of the Company and its minority shareholders.
Rationale for the Transaction
The conclusions and recommendations of the Special Committee and
the Board have been based on a number of factors, including the
following:
- Additional financing is required to pursue a number of
strategic growth opportunities identified by management in order
maximize the amount and timing of EBITDA improvement.
- The unexpected impact of the COVID-19 pandemic and resulting
global economic conditions have made it apparent that ensuring
liquidity during these uncertain times is imperative.
- The Company’s Second Lien Notes mature in October 2022 and the
additional EBITDA to be generated from the strategic growth
opportunities will improve the Company’s leverage and refinancing
alternatives.
- With the assistance of its financial advisor, the Special
Committee considered all available alternatives (including both
debt and equity) and determined that the Series B Preferred
financing, combined with other debt alternatives currently being
pursued, is the most attractive alternative to the Company.
Furthermore, any other equity financing alternatives would likely
be more dilutive to minority shareholders than the Series B
Preferred financing and would be subject to significantly greater
execution and closing risk.
- Other shareholders of the Company have previously commented
that it is important for major shareholders to show their support
during these uncertain times. The proposed transaction with two
sophisticated shareholders who closely follow the Company sends a
strong signal, particularly in the current market environment.
- The exchange price of $2.50 for Tranche 1 represents a premium
of 23% over the spot price of the Common Shares and a 35% premium
relative to the 15-day VWAP, in each case as of April 15, while the
exchange price for Tranche 2 will represent a 30% premium to the
15-day VWAP at the time of the pricing and will be subject to a
floor of $2.00 per share and a ceiling of $3.50 per share.
- The first tranche of the financing represents the smallest
transaction size that adequately meets the Company’s anticipated
requirements over the next 12 months, while the second tranche
provides the Company with optionality to satisfy its financing
requirements as circumstances unfold over the coming months
(potentially at an improved exchange price) and thereby minimize
overall dilution to other shareholders.
- The transaction structure is responsive to input from
shareholders, who are not a party to this transaction, who
recommended an approach similar to the two-tranche approach the
Company has taken for the reasons stated above.
Regulatory Matters
Since Oaktree (together with its affiliates) beneficially owns
and controls more than 10% of the Company’s outstanding voting
securities, the financing constitutes a “related party transaction”
under Multilateral Instrument 61-101 Protection of Minority
Security Holders in Special Transactions (“MI 61-101”). MI 61-101
provides that, unless exempted, a related party transaction must be
approved by at least a simple majority of the votes cast by
“minority” shareholders of each class of affected securities and
the issuer must obtain a formal valuation of the subject matter of
the transaction from a qualified and independent valuator. However,
an exemption from both the shareholder approval and formal
valuation requirements is available if, at the time the transaction
is agreed to, neither the fair market value of the subject matter
of, nor the fair market value of the consideration for, the
transaction, insofar as it involves interested parties, exceeds 25%
of the issuer’s market capitalization. Assuming the issuance of the
maximum number of Series B Preferred to Oaktree (and its
affiliates) under both the first tranche and the second tranche of
the financing, neither the consideration paid for such securities
nor the fair market value of such securities will exceed 25% of the
Company’s market capitalization. Accordingly, the Company does not
intend to seek shareholder approval or obtain a formal valuation in
respect of the financing.
Furthermore, MI 61-101 provides that, if an issuer proposes to
complete a related party transaction less than 21 days following
filing of a material change report in respect of the transaction,
it must explain why the shorter period is reasonable or necessary
in the circumstances. The Company currently expects the closing of
the first tranche of the financing to occur on or about April 24,
2020. The Company has concluded that such shorter period is
reasonable in order to complete the transaction in an expeditious
manner and to minimize the risk of a material adverse event
occurring in the current turbulent environment that could cause a
closing condition to fail.
In connection with the transaction, SunOpta is relying on the
exemption set out 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 Nasdaq.
Advisors
Evercore is acting as financial advisor to SunOpta and Davies
Ward Phillips & Vineberg LLP and Stoel Rives LLP are acting as
its legal advisors. Oaktree is represented by Kirkland & Ellis
LLP and Stikeman Elliott LLP. Engaged is represented by Olshan
Frome Wolosky LLP and Goodmans LLP. The Special Committee is
represented by Wildeboer Dellelce LLP.
About SunOpta Inc.
SunOpta Inc. is a leading global company focused on plant-based
foods and beverages, fruit-based foods and beverages, and organic
ingredient sourcing and production. SunOpta specializes in the
sourcing, processing and packaging of organic, natural and non-GMO
food products, integrated from seed through packaged products; with
a focus on strategic vertically integrated business models.
About Oaktree
Oaktree is a leader among global investment managers
specializing in alternative investments, with $125 billion in
assets under management as of December 31, 2019. The firm
emphasizes an opportunistic, value-oriented and risk- controlled
approach to investments in distressed debt, corporate debt
(including high yield debt and senior loans), control investing,
convertible securities, real estate and listed equities.
Headquartered in Los Angeles, the firm has over 950 employees and
offices in 19 cities worldwide. For additional information, please
visit Oaktree's website at www.oaktreecapital.com.
About Engaged
Engaged Capital 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 approximately
$1 billion of assets and dedicates its efforts and resources
towards 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.
Forward-Looking Statements
Certain statements included in this press release may be
considered "forward-looking statements" within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities legislation, which are based on
information available to us on the date of this release. These
forward-looking statements include, but are not limited to, our
expectation that the significant investments to be made in the
Company’s business will drive aggressive growth in 2021 and beyond,
our belief that the Series B Preferred financing provides the
highest risk-adjusted return among the options evaluated by the
Special Committee, and the anticipated closing date of the Series B
Preferred financing. Generally, forward-looking statements do not
relate strictly to historical or current facts and are typically
accompanied by words such as “expect”, “believe”, “anticipate”,
“continue”, “estimates”, “can”, “will”, “target”, "should",
"would", "plans", "becoming", "intend", "confident", "may",
"project", "potential", "intention", "might", "predict", “budget”,
“forecast” or other similar terms and phrases intended to identify
these forward-looking statements. Forward-looking statements are
based on information available to the Company on the date of this
release and are based on estimates and assumptions made by the
Company in light of its experience and its perception of historical
trends, current conditions and expected future developments
including, but not limited to, the Company’s actual financial
results; management’s assessment of the incremental capacity and
EBITDA to be realized from the capital projects for which the
proceeds of the financing will be used; current customer demand for
the Company’s products and the additional anticipated demand due to
COVID-19; general economic conditions; continued consumer interest
in health and wellness; the Company’s ability to maintain product
pricing levels; planned facility and operational expansions,
closures and divestitures; cost rationalization and product
development initiatives; alternative potential uses for the
Company’s capital resources; portfolio optimization and
productivity efforts; the sustainability of the Company’s sales
pipeline; the Company’s expectations regarding commodity pricing,
margins and hedging results; improved availability and field prices
for fruit; procurement and logistics savings; freight lane cost
reductions; yield and throughput enhancements; and labor cost
reductions. Whether actual timing and results will agree with
expectations and predictions of the Company is subject to many
risks and uncertainties including, but not limited to, the
inability to satisfy, or potential delays in satisfying, any of the
closing conditions applicable to the Series B Preferred financing
or the other debt financing alternatives that the Company is
pursuing; liquidity constraints and the availability of alternative
financing sources; potential loss of suppliers and customers as
well as supply chain, logistics and other disruptions resulting
from or related to COVID-19; unexpected issues or delays with the
Company’s structural improvements and automation investments;
failure or inability to implement portfolio changes, process
improvements, go-to-market improvements and process sustainability
strategies in a timely manner; changes in the level of capital
investment; local and global political and economic conditions;
consumer spending patterns and changes in market trends; decreases
in customer demand; delayed or unsuccessful product development
efforts; potential product recalls; working capital management;
availability and pricing of raw materials and supplies; potential
covenant breaches under the Company’s credit facilities; and other
risks described from time to time under "Risk Factors" in the
Company's Annual Report on Form 10-K and its Quarterly Reports on
Form 10-Q (available at www.sec.gov). Consequently, all
forward-looking statements made herein are qualified by these
cautionary statements and there can be no assurance that the actual
results or developments anticipated by the Company will be
realized. The Company undertakes no obligation to publicly correct
or update the forward-looking statements in this document, in other
documents, or on its website to reflect future events or
circumstances, except as may be required under applicable
securities laws.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200416005212/en/
Scott Van Winkle ICR 617-956-6736 scott.vanwinkle@icrinc.com or
Oaktree Contact: mediainquiries@oaktreecapital.com or Engaged
Capital Contact: Dan Gagnier, 212-687-8080 x226 Gagnier
Communications dg@gagnierfc.com
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