Oaktree ups stake in Canada’s SunOpta

A little over a year since Oaktree Capital first invested in SunOpta, a natural and organic food producer based in Ontario, the Los Angeles-based alternative investment firm has acquired an additional 3.7 million shares for $27.8 million, bringing its total ownership interest in the Canadian company to 19.8 percent.

“The investors acquired the common shares and the preferred shares for investment purposes,” Oaktree said, referring to Oaktree Organics and Oaktree Huntington Investment Fund II, the two vehicles through which the acquisition was made. It did not elaborate on the investment purposes behind the latest transaction and a spokeswoman for the firm declined to comment.

Oaktree initially invested in SunOpta in October 2016, a few months after the Canadian company’s largest shareholder at the time, Tourbillon Capital Partners, was pushing for a sale of the company, following recalls of certain sunflower kernel products due to potential listeria contamination.

After an extensive review of the company’s operating plan, SunOpta agreed to partner  Oaktree, which made an equity investment of $85 million in the company in exchange for 85,000 Series A preferred shares and two seats on SunOpta’s board. Under the terms of the agreement, Oaktree cannot sell any of the preferred shares before April 7, 2018.

Changes at the top

Following this latest acquisition, Oaktree said it “now beneficially own[s] an aggregate of (i) 8,092,699 common shares that they acquired through the facilities of the NASDAQ,” in addition to the 85,000 Series A preferred shares, which are currently exchangeable into 11.3 million common shares, representing about 11.56 percent of the outstanding common shares on a partially diluted basis.

Since Oaktree’s initial investment, SunOpta has implemented management changes – it appointed a new chairman, Dean Hollis, a senior advisor for Oaktree; and a new chief executive, David Colo.

Last February, SunOpta also adopted a Value Creation Plan, which includes investing in the business where structural advantages exist, while exiting product lines where SunOpta is not effectively positioned. As a result, the company has closed a juice facility in San Bernardino, California and a soy extraction facility in Heuvelton, New York. It has announced the closure of a nutrition bars facility in Carson City, Nevada and has exited certain varieties of specialty soy and sunflower products.

In terms of investments, SunOpta has approved plans to increase capabilities at sunflower operations in both North America and Europe, as well as a capacity expansion at Crown of Holland, a specialty cocoa processing facility in the Netherlands, belonging to Tradin Organic, a SunOpta subsidiary.

Mexico move

Additionally, it also acquired the remaining 25 percent stake in the company’s Mexican frozen fruit processing operations in Jacona, part of Sunrise Growers, a frozen fruit company SunOpta acquired from Paine & Partners in October 2015 for $450 million.

In August, however, SunOpta recalled certain frozen organic dark sweet pitted cherry products distributed from Sunrise Growers’ facility in Edwardsville, Kansas, due to potential listeria contamination. “The issue was discovered during routine testing by Sunrise Growers. No illnesses related to the consumption of these products have been reported,” the company said at the time.

Asked whether this latest recall was a cause for concern given that improved food safety is one of the goals set out in the value creation plan, Oaktree declined to comment.

Listed on Nasdaq and the Toronto Stock Exchange, SunOpta focuses on organic, non-genetically modified and specialty foods. The company reported revenues of $320.7 million for the third quarter of 2017, an 8 percent decrease compared with the $348.7 million posted in the third quarter of 2016.

“We continued to make progress against all four pillars of our Value Creation Plan during the third quarter, refining the portfolio, enhancing the team at the plant level and in senior commercial leadership, implementing productivity savings and building a sustainable platform,” Colo said. “While not reflected in this quarter’s results, we are making progress building a robust pipeline of future sales opportunities with both new and existing customers.”

“As we move into 2018, we expect that our revitalized pipeline, combined with the benefits from our portfolio optimization and productivity efforts, should begin to become apparent in our financial results.”