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SunOpta draws private equity interest

Canadian organic food company SunOpta Inc, already under pressure from U.S. hedge fund Tourbillon Capital Partners LP, is being prodded by a second activist shareholder to explore the sale of all or part of the company, according to sources familiar with the matter.

Canadian hedge fund West Face Capital, which pushed SNC-Lavalin to sell its AltaLink business for about C$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 8 percent 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 percent 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.

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 C$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 percent at C$6.54 on Monday.

SunOpta set ambitious goals in April for gross margin and sales, including raising its overall gross margin to between 14 percent to 16 percent within three to five years from the current 11 percent, 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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