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					CASE STUDY: Clearwater Fine Foods Recent Venture

Case Study:

The proposal of Clearwater Fine Foods of Nova Scotia (NS) on the 6 th September 2001 for
integrating with fishing giant Fisheries Products International (FPI) of Newfoundland (Nfld) was
the result of an aggressive move by Clearwater to gain control of the Board of Directors at FPI
and to oust the existing FPI management. This case study examines the fascinating ventures
of these two firms and their current business positions leading up to the recent events of the
takeover attempt, and subsequent reaction and withdrawal of the proposed merger.            The
implications for international markets and competition and / or domestic relations in Atlantic
Provinces namely NS and Nfld, employment, fish allocations, etc., are discussed.            The
purpose of this report is to describe a business case study of the firms involved including,
historical background on the situation, as well as to provide a critical assessment of the
imminent future reconciliation of business strategy in the fishing sector.

Research member:

Dr. Daniel Lane      dlane@uottawa.ca (Supervisor)

Arthur So            aso@uottawa.ca

Date: 1st March 2002

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CASE STUDY: Clearwater Fine Foods Recent Venture

                                                       Table of Contents

Abstract ................................................................................................................... 3
Introduction ............................................................................................................. 4
Historic background................................................................................................. 5
  Highlights and milestones of FPI .......................................................................... 5
  Reference ............................................................................................................. 7
  Highlights and milestones of Clearwater .............................................................. 8
  Reference ............................................................................................................. 9

Business Drivers ................................................................................................... 11
  FPI ...................................................................................................................... 11
  Clearwater Fine Foods Inc.................................................................................. 11

Global Markets Analysis ........................................................................................ 12
Domestic Markets Analysis ................................................................................... 17
The Merger Reaction............................................................................................. 19
Critical Success Factors and Risks Analysis ......................................................... 20
Projection of the acquisition of FPI by Clearwater ................................................. 21
Conclusion ............................................................................................................ 22
References ............................................................................................................ 24
Annex A................................................................................................................. 27
  FPI 2000 / 2001 Financial Report ....................................................................... 27

Annex B................................................................................................................. 32
  Monthly Average of the Stock Prices .................................................................. 32

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CASE STUDY: Clearwater Fine Foods Recent Venture


The announcement from the Chairperson of Fishery Products International Ltd. (FPI) on the
6th September 2001, at St. John's, Newfoundland (Nfld), to acquire the assets of Clearwater
Fine Foods Inc. for $510 million would have resulted in the creation of the largest seafood
company in Canada. The closure of the transaction was eventually aborted by FPI after a
concerted effort by Newfoundland provincial politicians and the negative public reaction on
subsequent statements made by FPI regarding its proposed strategic plan for Newfoundland
fish plants. This study describes the events leading up to the proposed merger, and the
circumstances that followed the merger’s demise. As a business case, the purpose of the
report is to analyze the background of the key parties to the proposed venture and its potential
impact on the fisheries business sector and its stakeholders. This will include FPI employees’
employment stability and the assessment of the impact of market share, nationally and
internationally by its products and its global competitors. In the course of this study the unique
status of the FPI Shares Limitation Act, through the governing Nfld provincial legislation, is
reviewed along with Provincial and Federal law that have, at once, supported the growth of FPI
and presented insurmountable obstacles that jeopardized the completion of the merger.

The report provides with the evaluation of merger’s proposed intention for securing
international markets and its expectation of long-term profitable business operations.           It
concludes with a critical assessment of the future impact on the fisheries business sector in
Atlantic Canada.

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CASE STUDY: Clearwater Fine Foods Recent Venture


The scallop fishery on Georges Bank has been developed since 1940. Since 1973, there were
76 licenses awarded for vessels greater than 65 foot according to the Department of Fisheries
and Oceans (DFO) Offshore Scallop 2000 report. In 1977, Canada had the concept of a 200-
mile exclusive fisheries zone but it was not incorporated into Law of the Sea Convention
(“UNCLOS III”) until 1982. This extended jurisdiction was to enforce and to protect the Atlantic
depleting fish stocks. The fishing industry crisis was first recognized as early as in 1928.
There was the Report of the Royal Commission on Maritime and Quebec Fisheries that raised
the issues of the Atlantic fishing industry. Fifty years later, the Prime Minister announced the
appointment of a Task Force on Atlantic Fisheries on January 9, 1982 to address the similar
problem. The primary objective of the Task Force was to recommend “how to achieve and
maintain a viable Atlantic fishing industry, with the consideration for the overall economic and
social development of the Atlantic Provinces”. Dr. Michael Kirby headed this Task Force and
the report, was completed in December 1982. The report, later referred to the Kirby Report
consisted of three major key elements: the environment, the options and the recommendations
respectively. Unfortunately, the depletion of Atlantic species continues to threaten it’s the local
economy and the growth of the communities. The world oil crisis during the same period has
also raised the cost to run the business.          Other measures are required to stimulate the
economy of the Atlantic Provinces along with the subvention from the government.

The main Atlantic coast catches are always species like cod, herring, lobster and scallops. By
1984, the fisheries industry has seen an increase of bankruptcies and high unemployment in
the region. The company Fisheries Products International (FPI) was formed by re-grouping
some of the bankrupted fishing companies into one with the subvention from the provincial
government. Mr. Vic Young was then appointed as FPI’s CEO when FPI was privatized in
1987 and he remained with the company until 2001. One of his major achievements was
nursing FPI through the cod moratorium without closing any plants during the period of 1992
and 1993.

The removal of Mr. Vic Young and his replacement with Mr. Derrick Rowe as CEO of FPI in
May 2001 has been interpreted as part of a direct strategy of Mr. Risley to acquire FPI after an

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CASE STUDY: Clearwater Fine Foods Recent Venture

earlier failure to take over the same company in 1999. This study begins with the past events
and milestones of both companies and then describes the business drivers that fuelled the
interest in such a merger. It then follows with an analysis of the global and domestic markets
that will enable further understanding of Mr. Risley’s vision in the fisheries business. The
discussion of diversified of fisheries and the value-added in the products in order to
compensate the decrease of revenue and fish stocks have been seen as Mr. Risley's business
strategy. The would-be acquisition is analyzed in terms of critical factors and risks especially
with the disputes from the employees and the union. A projected plan of action is considered
that would persuade the opponents about the advantages of this merger if it were successful.
The study concludes with a critical analysis of the future impact on the fisheries business
sector in Atlantic Canada in short and long term.

Historic background

Highlights and milestones of FPI

The 1982 Kirby Report showed the deficiencies of the Atlantic fisheries and outlined
recommendations to remedy the situation.            In 1984, seven bankrupt, ruined fisheries
companies in St John’s formed FPI with a $150 million rescue package from the Newfoundland
(Nfld) provincial government. FPI reverted into a profitable company, paid off its debts and
then converted into a public company traded on the Toronto Stock Exchange in 1987. The
company has also created the 15% limitation of right to vote share ruling on each shareholder.
This particular Act was to ensure that there is no monopoly takeover of the business and that
the workers’ employment is protected. The company was under Mr. Vic Young’s direction from
1987 until Mr. Derrick Rowe replaced him in May 2001. The most significance work that Mr.
Young did was nursing the company through the cod moratorium without closing any plants in
1993. FPI participates as the dominant player in the seafood industry of Nfld and Labrador,
especially in many rural communities. Therefore the announcement of the merger and the
intention of closing fish plants were considered as uninvited economic solution to the
communities. Although there is an “open for business” economic policy adopted by Nfld and
Labrador government some time ago, the reduction of work force strategy has violated the
main theme of their Renewal Strategy for Jobs and Growth that was released in 2001 by the

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CASE STUDY: Clearwater Fine Foods Recent Venture

same government. Hence, the proposed merger was viewed by the workers as a hostile
takeover without the consideration of the local community economic and tradition.

Fig I Share Prices Performance 1999 - 2002

Fig 2 Financial Data

                                                    2000              2001          2002e
Earnings per Share                                   0.90             0.89*           0.94
Price to Earnings (times)                            10.0             10.1            9.6
Dividend ($)                                         0.15             0.18           0.18
Dividend Yield (%)                                   1.67             2.00           2.00
Book Value ($)                                      12.96            12.75           13.51
Price to Book Value (times)                          0.69             0.71           0.67
*Excluding extraordinary cost of $0.96

Trace through the annual reports – purchase and diversification of FPI; sale of offshore trawler

The company operates with eight onshore processing facilities in Newfoundland, three vessel
service and/or refit centers in Newfoundland and Nova Scotia, a fleet of 13 groundfish vessels,
and one frozen-at-sea cold water shrimp processing vessel.          FPI employs about 2,600
employees and purchases fish and shellfish from more than 3,000 independent harvesters in
Newfoundland. For the year ended December 2001 (Annex A), FPI recorded income before
unusual items of $10.5 million (69 cents per share) on sales of $703.1 million. There is a

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CASE STUDY: Clearwater Fine Foods Recent Venture

$20.1 million decrease from the 2001 sales and net loss for the year was reported as $1.0
million (7 cents per share) compared to year 2000 sales of $723.2 million with a net income of
$13.6 million (90 cents per share) in 2000 [1]. Their auditor Ernst & Young prepared the
company consolidated financial statement and commented that the gross profit decrease was
due to several factors. The principal cause was the lower pricing of shellfish, coupled with
higher costs associated with groundfish operations.        There are also the unusual items
expenditures of $14 million incurred for the year 2001 for such things as the proxy contest
costs, severance costs for the previous managing directors and other write-off costs as
described in the 2001 financial statement.

   Date                 Description                            Reference
1973           76 Licences for vessels >       DFO Offshore Scallop 2000 Report
               65’ LOA
1980-82        Kirby Report on Atlantic        Navigating Troubled Waters, Kirby Report
               Fisheries with survival
1984           Less than 2000t of scallop,     DFO Offshore Scallop 2000 Report
               lowest catch on record
1984           FPI was formed by               Macleans Apr, 2001
               integrating the bankrupt
               ruins of seven companies
               and $150 M rescue
               package from NS provincial
1987           FPI Privatized into public      CBCA Canadian Press Newswire, May 1, 01
               company with the 15%
               stock limitation act and paid
               off debts
1992           Vic Young, FPI, nursed          CBCA search – Financial Post May 2’01 pg
               through the cod moratorium      C1, C10
               without closing any plants
1992           Groundfish moratorium           Canadian Business, Apr 30, 1999, Vol 72 no8
               devastated the Atlantic         p50-2
               fishery with cod the major
1999           Clearwater’s bid to take        http://www.seafoodbusiness.com/archives/sear
               over FPI                        chframe.asp
01/05/2001     82% in favour of replacing      Kevin Cox, Canadian Press, 2 May 2001
               the existing board of
06/092001      Announced the FPI and           Canada NewsWire
               Clearwater merger
Sep 2001       Minister responds to FPI’s      http://www.gov.nf.ca/releases/2001/fishaq/090
                                                                                     Page 7 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

               proposed acquisition            6n05.htm
18/01/2002     Gerry Reid, Minister of         FPI Press Release 18/01/2002
               Fisheries commented on
               the acquisition and FPI’s
               15% share limitation act
22/01/2002     FPI plan to revamp              World Watch 22/01/2002
               groundfish processing by
               eliminating 580 jobs and
               modernizing 3 plants in Nfld
28/01/2002     Provincial hearing of the FPI   Canada NewsWire
               Act and Hon John Crosbie
15/02/2002     FPI announced not to            globeinvestor.com
               proceed with the acquisition
21/03/2002     Amendments to the 1987          Canada Newswire
               FPI's15 per cent ownership
               restriction be extended to
               include all company shares
03/05/2002     Agreement with the union        Canada NewsWire
15/05/2002     -Appointed Mr. Rowe as          Canada NewsWire
               President and CEO
               -23% increase in the first
               quarter earnings

Highlights and milestones of Clearwater

Mr. John Risley and his brother-in-law, Mr. Colin MacDonald first started as local lobsters retail
outlet in Bedford, NS in 1976. They then expanded to wholesale export in Boston seafood
markets before the company becomes a multi million international business. By 1988, this
company has fourteen plants with three in United Kingdoms and eight in the USA and has a
work force of 1,800. The seven corporate license holders of the offshore quota for the 24
vessels that harvests of more than 45 million pounds of product per annum with an estimated
wharf value of $60 million annually.      Their catches are mostly lobster, scallop, clam and
shrimp. Mr. Risley diversified his business into fisheries processing plants in which he predicts
that the ready-to-serve business will be the future driver of the business. Hence the company
emphasis on new species development and bleeding-edge process technology in each of its
major production lines. As a consequence, Clearwater has invested more than $200 million in
processing plants and vessels upgrades over the past five years.            Mr. Risley’s use of

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CASE STUDY: Clearwater Fine Foods Recent Venture

technological innovation to support persistent marketing has been successful throughout his

   Date                 Description                                 Reference
1976           Clearwater formed by John           Macleans Apr 30, 2001, vol 114 no18, p 34,36
               Risley and Colin MacDonald
By 1988        Clearwater operated 14              Canadian Business Apr 30,1999, Vol 72 no 8 p
               plants with 3 in UK and 8 in        50-2
1989           Clearwater closed groundfish        Canadian Business Apr 30,1999, Vol 72 no 8 p
               plants,150 people out of work,      54+
               sold foreign assets-Hillsdown
1997           John Risley was named               Canadian Business, Apr 30, 1999
               entrepreneur of the year by
               Ernst & Young
1999           Bidding of FPI                      Canadian business Dec 31,2001, Vol 74 no
                                                   24, p95
06/09/ 2001    Second attempt to acquire           Canadian business Dec 31,2001, Vol 74 no
               FPI with 16 million non-voting      24, p95
               shares, $100 million in
               preferred shares and assume
               Clearwater's $210 M debt
18/01/2002     Public hearing of Nfld              Worldcatch.com, Article ID=6944
               Fisheries Minister to the FPI
18/03/2002     Interview of John Risley by         Canadian Business; Toronto; Apr 1, 2002; Vol.
               Jason Kirby                         75, Iss. 6; pg. 21

Clearwater Fine Foods Inc. sales charts by regions and by species in the year 2000 were
obtained from the company as shown below. Due to the privacy status of the company, no
actual accounting figures were provided.        It is evident that the majority of its species are
shellfish; mainly lobster and its markets are concentrated in North America.

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CASE STUDY: Clearwater Fine Foods Recent Venture

                         2000 Sales by Region



                                       ASIA OTHER

                             2000 Sales by Species
                              Shrimp                            Cl ams
                               18%                              17%

                                                                                   Co d


                 Scall ops

                                               O ther Seafood

Courtesy from Clearwater Inc.

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CASE STUDY: Clearwater Fine Foods Recent Venture

Business Drivers

We now analyze the business drivers of the two firms in terms of performance and operational
success in harvesting, production and marketing of fish. With the identification of the main
components as strategy or improvement, business excellence could be achieved in the post
merger era.


FPI is one of the largest suppliers of seafood in North America.       Its primary catches are
groundfish and shellfish as indicated in the company annual report. The company has also
been a leader in developing and implementing new and sustainable harvesting techniques.
Much of this innovative harvesting research is carried out in partnership with the Marine
Institute at Memorial University, Newfoundland. In addition, the company has diversified into
the prepared seafood industry. Branded under the FPI, Mirabel, Sea Cuisine and Maripac
labels, FPI products are marketed to foodservice and retail customers in over fifteen countries.
FPI is also the exclusive international marketer of Atlantic Queen Seafood’s Luxury brand
snow crab products.

Clearwater Fine Foods Inc.

Clearwater’s sales of live lobsters by air shipment to the US is not only the first Canadian
company that broke through the US lobster markets but it has also opened the door to Asia
and European markets. The success has extended more recently in the development of surf
clam and shrimp markets in Japan and China.

Much of Clearwater’s recent growth has come from successful joint venture relationships with
a diverse range of partners as the following:
Glaciar Pesquera – an Argentine subsidiary;
Clearwater Ocean Prawns Joint Venture in the Northern Shrimp Management Plan (1997-
Unaaq Fisheries - an Inuit joint venture in Canada’s northern shrimp fishery since 1987;
Deep Sea Clam Company and Knickle Ltd. Both with surf clam and sea scallop fisheries;
Ocean Nutrition Canada in marine based nutritional products.

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CASE STUDY: Clearwater Fine Foods Recent Venture

The above information was extracted from the company’s backgrounder about its growth
strategy. The company’s combination of business partnerships and strategic investments has
shown its interest in the diversification into marine based nutritional products. The company
has also plan to establish sales offices in each of its marketing group over the next two years
around the world in countries such as Japan, China, France, Germany, Spain, Belgium, and
Norway etc. The geographic diversity of its markets will also be supported by the diverse
language and cultural backgrounds.

Global Markets Analysis

The 1999 and 2000 aquaculture imports and exports statistics obtained from DFO has
demonstrated that there is an overall increase in both imports and exports for Canada. This
report has only selected exports / imports for species such as finfish, groundfish, cod, clam,
scallops, lobster, crab and shrimp and the countries such as USA, EU & non-EU, Central &
South America, Japan, China, Taiwan and Thailand to be analyzed. It is proven that the effort
in augmenting exports will stimulate the local and Canadian economy.

                           Jan to Dec,                            Jan to Dec,
                           2000                                   1999
Grand Total   Quantity     Value         $/KG      Quantity       Value         $/KG
Imports       426,918      2,018,619     4.73      488,422        2,008,219     4.11
Exports       495,976      4,067,363     8.20      506,312        3,742,283     7.39

The following charts are compiled from 1999 and 2000 data showing the exports / imports of
the above selected countries and species in sales and tonnages. The figures will be used to
demonstrate the benefit of the proposed merger.

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CASE STUDY: Clearwater Fine Foods Recent Venture

                                 Canada Export / Import 1999 of Species by Countries







                               USA      EU     NonEU             Japan    China   Taiwan Thailand Others
              Export Tonnes   338446   57353   6393    19868     50795    12936   7497     3279    9745
              Import Tonnes   196671   20560   90105   79035     4123     17538   7497    44090   28803
              Export $        2581440 360262   29746   52635     480888   93797   23981   24316   95218
              Import $        873009 106119 308715 142502        22059    79612   22027   278769 175407

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CASE STUDY: Clearwater Fine Foods Recent Venture

                                    Canada Export / Import 1999 by Species







            Species                                                                      Others
                            Cod        Clam     Scallop   Lobster    Shrimp    Crab
                                                                                       minus NES
           Export Tonnes   25671      76698      6092      39886     40084    59442     154063
           Import Tonnes   12637       2910      3256      15386     60541    7771      222319
           Export $        206429     70309     124672    793289     267642   630999    1196470
           Import $        45111      30101      35736    190429     505517   43414     825345

NES – Not Elsewhere Specified.

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CASE STUDY: Clearwater Fine Foods Recent Venture

                                Canada Export / Import 2000 of Species by Countries







                               USA      EU     NonEU           Japan   China   Taiw an Thailand Others
           Countries                                   America

              Export Tonnes 345629     50262   3142    15646   46944   14394    6812    2783    10364
              Import Tonnes   197820   18525   73742   32933   2910    19612    9433    39594   32349
              Export $        2898637 326577   21314   36043   525719 109640   27199    23369   98865
              Import $        897648   83286   285702 117872   18294   99037   23069   281658 212053

                                                                                                         Page 15 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

                                     Canada Export / Import 2000 by Species








              Species                                                                     Others
                             Cod        Clam     Scallop   Lobster    Shrimp    Crab
                                                                                        minus NES
            Export Tonnes   24133       7440      8375      42704     42038    55677     218005
            Import Tonnes    9302       2574      3379      17364     66369     8890     210515
            Export $        192356     71462     158268    897254     303468   719636   1253669
            Import $        31357      24868     42583     199818     560878   44431     797903

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CASE STUDY: Clearwater Fine Foods Recent Venture

Domestic Markets Analysis

                                         Canada Export 1999 vs Clearwater & FPI

 Sales in CAD '000





$2,000,000                                                                                                              $480,888

$1,500,000                                                                                   $29,746      $52,635                      $93,797         $23,981                   $95,218

                           $108,306      $64,712                                                                                                                                             Canada Exports
$1,000,000                                           $44,038
  $500,000            $11,966     $53,849       $40,387                                                   $26,925                                                    $16,454
                                                                      Central & S. America


                                                       Non EU





                                                                                                                                                                                 Canada Exports

                                                                                                                                                                                                              Page 17 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

                                              Canada Export 2000 vs Clearwater & FPI

             Sales in CAD
                 '000                     $4,067,363





                                                                                                           $21,314       $36,043                           $109,640         $27,199                        $98,865

                                                                                                                                                                                                                     Canada Exports
                                $111,463                        $47,780
$1,000,000                                                                                                                                                                                       $40,920
                          $13,390         $76,994         $36,823                                                        $23,433
 $500,000                                                                                                                                                                                  $16,738



                                                                    Non EU


                                                                                    Central & S. America


                                                                                                                                                                                              Canada Exports

The above two years of Canadian and the two companies exports statistics showed that there
is the advantage of bargaining power in the pre and post merge (if in lieu). The combined
operation would cut down the administrative tasks and sharing resources in terms of
manpower and material. In doing so, the cost of operation could be lowered; the fisheries
prices could therefore be lowered to compete with the world markets. Increasing exports
especially to the US markets could be a successful spin-off to the Canadian economy.

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CASE STUDY: Clearwater Fine Foods Recent Venture

The Merger Reaction

The first takeover of FPI was attempted in 1999 by Mr. Risley but failed. Mr. Risley currently
owns 13.6% of the FPI voting shares and has control of nearly 40% of FPI shares with the
combination of Clearwater, Icelandic and Bill Barry’s firm.      The announcement on the 6 th
September 2001 of the offer of Clearwater to acquire FPI has created an issue with the
Newfoundland Provincial Fishery Products International Limited Act1 on Chapter F-15 in which
the most concerned item is the limit of 15% voting shares ruling.

The merger transaction was subjected approval from governmental regulatory bodies, Bureau
of Competition Policy, Industrial Canada and shareholders. In the meantime, Mr. Risley was
also promoting the modernization of the fish plants and this would lead to streamline its
operations and minimize the work force.        The idea of decrease work force has sparked
opposition to such merger by the local communities and government bodies. A comment from
the Provincial Fishery Minister, Mr. Gerry Reid, has led to an inquiry of this venture. This later
resulted in the imposition of a 15% ownership cap on all types of votes by the Newfoundland
Premier Roger Grimes on the 28th January 2002. There was criticism about the amended act
and the Premier’s “open for business” initiatives to encourage investment in the region have
been challenged in the Canadian Business communities.

Finally, on the 15 February 2002, FPI announced that they would not proceed with the merger.
A journalist, Jason Kirby, later interviewed Mr. Risley in March about the withdrawal of the
merger but he did not indicate any particular reason to recede the transaction. The interview
terminated with the impression that Mr. Risley will not abandon the idea of acquisition and he
will try again with other venues [9].

Apart from the opposition from the Newfoundland locals, the merger would have created the
largest Canadian fishery firm in the eyes of the business world. FPI and Clearwater could
increase its sales by combining both company value-added businesses. The Atlantic fishery is
proven to be volatile due to external risks such as government-induced quotas and depleted
fish stocks.

    Nfld Fishery Products International Act

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CASE STUDY: Clearwater Fine Foods Recent Venture

Critical Success Factors and Risks Analysis

In order to have completed the merger transaction successfully, there were several major
factors that needed to be considered. The FPI Shares Limitation Act presents an obstacle
because Mr. Risley’s amount of voting and privileged shares indicated above.          The Nfld
provincial government has also amended the 15% limit across all categories of shares in
January 2002 so that Mr. Risley would not qualify to bid for the merger. The announcement of
modernization of the fish plants that may cause the closure of the plants may be pre-mature
without prior seeking a public approval of the merger. The workers in the communities would
only assume that the closing of the plants would decrease employments from their past
experience extracted from the Business Magazine – Atlantic Report, v 27(1) March, 1992 pg
        In February 1992, there were 7,000 fewer jobs in Newfoundland and the Hibernia
         spending was cut by 50%, increasing the unemployment rate to 18.9%.
        In 1991, FPI closed its Catalina plant, affecting 1,000 jobs.
        In March 1992, FPI closed its Marystown plant.
        In 1991, National Sea Products (NSP) closed down its Newfoundland operations, laying
         off 375 workers in Arnold's Cove and 170 at its St. John's trawler base.

From a global market point of view, the merger could probably lower the fish prices and allow
for competition in world markets such as Japan, China, Europe and the US. But we have to
investigate into the import and export fishery products treaty with other countries. Abiding the
quotas and restrictions could offset this opportunity.

The stock market is very much sensitive to any changes within the company and the economy.
The following stock prices for the past five years reflect the ups and downs for FPI. As an
example, the replacement of Mr. Vic Young by Mr. Derrick Rowe on the 1 May 2001 has
probably caused the peak of share price of $11.50 on the 30 April 2001 prior to the
announcement of the Board of Directors replacement. The stock prices stabilized until the
merger news on the September 6, 2001 in which the share has peaked to almost $11 again.

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CASE STUDY: Clearwater Fine Foods Recent Venture

Then the price was on the downward trend to below the $8 value in the beginning of February
2002. This was due to the negative view of the merger and protest from the public especially
the resident of Newfoundland as discussed above. Once the merger proposal was withdrawn
on the 14 February 2002, the price went back up and the company is trading presently
between $8 and $9.

Observing the Newfoundland tradition can be considered as criteria to the success of the
merger. In a community of Newfoundland, trust and respect can gain a lot of support of the
people and the local government. In addition, Mr. Risley’s decision to close a Clearwater
groundfish plant in 1989, throwing 150 people out of work did not gain the confidence of
Newfoundlanders.      Implementing new technology can always cause resistance from
employees.    They have to be re-trained and the productivity would decrease due to the
learning curve of any new skills. Mr. Risley has his long-term vision but the immediate impact
on the communities caused them to raise objections to the merger.

Projection of the acquisition of FPI by Clearwater

Now come to the discussion of what if the merger transaction had been successful. What are
the outcomes of the two companies?         The objective to merge the two companies, in my
opinion, is to offset risks, augment revenues and earnings. We are now in a health conscious

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CASE STUDY: Clearwater Fine Foods Recent Venture

society especially in the North America where fish is considered to be a prime health food.
Therefore, diversification into the fishery products is an effective strategy and the merger
would assist the innovative value-added products by sharing the companies’ resources and
their markets. In fact, the average North Americans consume only 15 pounds of seafood a
year while Europeans consume four times that amount. The merge would have helped both
companies to complete in the world markets.
The merge would have also resulted in FPI buying Mr. Risley’s Clearwater for $510 million by
issuing 16 million non-voting shares and $100 million in preferred shares. Clearwater’s $210
million debt would also be assumed by FPI.         The merger would create Canada’s largest
seafood company with a estimated of $1 billion in sales. Clearwater would have gained more
cash flow and FPI would be modernized by Mr. Risley’s plant transformation plan.

Here is a quote from Canadian Business; Toronto; Feb 4, 2002 by Matthew McClearn:

<If Newfoundland's leaders wish to run a money-bleeding, woefully inefficient, make-work
project at taxpayer's expense, they never should have privatized FPI in the first place. >

The quotation has reflected the reaction of a business minded person.         The stock price
performance in the announcement of the merger has also demonstrated the positive move by
the eyes of the investors. The price has gone up from around $10.50 to a high of $11.50 per
share in September 2001. The price remained at the $10 level until the Clearwater announced
the withdrawal in February 2002. The stock price dropped to the $8 level.


This concludes the study of the proposed merger of Clearwater to FPI. The withdrawal of the
proposal in the midst of drafting this study has led to some changes in some thoughts and the
structure of this document. The merger would have been successful if more consideration had
been given to the communities involved, their traditions, potential job losses and past
experiences with the fishery industry. The interview last March with Mr. Risley by Jason Kirby
as reported in Canadian Business has indicated that Clearwater might become a public
company as FPI did in order to raise equity.          In the mean time, Clearwater will be
concentrating on improving its core operations. Mr. Risley also commented that his merger
proposal was meant to be in the best interest of the Newfoundland economy and depleted fish

                                                                                   Page 22 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

stocks. He also regretted that the Newfoundlanders have formed different opinions that were
distorted by the controversy of job layoffs. My final prediction for this saga is that the two
companies will be in a joint partnership relationship in the future. Mr. Risley will continue with
his venture by taking more calculated risks as he is called a “Gambler” in one of the Profit
Guide articles.   On May 28, 2002, The Halifax Daily News has already reported that
Clearwater was hoping to raise as much as $200 million to pay for planned acquisitions of
processing companies in the United States and Europe. This is the latest exploit of Mr. Risley
after the merger withdrawal of FPI and Clearwater.

                                                                                     Page 23 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture


ABC Funds (2000), Value Investigator (June), Internet:

Baird, Moira, Clearwater acting alone, says Risley, The Telegram (St. John's), March 28, 2001,
Final Edition, p.1 / FRONT

Bertin, Oliver, Canada’s seafood industry giants to merge, The Globe and Mail, Friday,
September 7, 2001, p. B3

Brent, Paul (2001), Shareholders in a fine kettle of fish, Financial Post (National Post), May 1,
2001 p. C2

Caldwell, Brad M. (2001), United Nations Fishing Agreement Review, (Dec 11), Internet:

Chidley, Joy (2002), Roger and Me, Canadian Business, Toronto (March 18), Vol. 75, Iss. 5;
pg. 60, 4 pgs

Cleary, Ryan, Taking over: FPI to swallow bigger fish in Clearwater, The Western Star (Corner
Brook), Friday, September 7, 2001, p. 1 / FRONT

DeMont, John (2001), Claws come out: two Atlantic seafood tycoons square off over control of
Newfoundland's biggest company, Maclean's, April 30 2001, vol 114 no 18, p 34,36

DFO Statistics (1999-2000), Domestic Imports / Exports of Selected Commodities,
(December), Internet:

Editorial (2002), Risley plans to cast net for Clearwater investors, The Halifax Daily News,
Daily Edition, (May 28), p.23

Foot, Richard, Hearings about to begin into FPI's future: Emotional issue, Financial Post,
January 26, 2002, p FP5

FPI earnings stronger than expected, The National Post (March 22, 2001), J1 10’00 p. D2

                                                                                     Page 24 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

FPI Reported Revenue of $535M, Globe & Mail (1991), Toronto Metro edition, February 26, p.

Faulkner, Robert, Seafood swallows rival, The Toronto Star, Friday, September 7, 2001, p.

Grimes, Roger, Newfoundland just doing what everyone else does, Financial Post, F 22 2002,
p. FP15

Guzzwell, Diane (2002), Administrative Assistant, FPI 2001 Annual Report (May 1), Internet:

High Liner pulls in Q3 profit increase; FPI net lower despite gutted costs, Canadian Press
Newswire, O 30 2001

Hoare, Eva (2001), Clearwater, FPI merge; Risley in control, The Chronicle-Herald, Friday
September 7, 2001, p. A1

Kirby, Jason (2001), The rich 100 - in depth: a new sea-e-o, Canadian Business, Toronto
(December 31), Vol. 74, Iss. 24; pg. 95, 1 pg

Kirby, Jason (2002), The one that got away, Canadian Business, Toronto (March 18), Vol. 75,
Iss. 5; pg. 60, 4 pgs

Kirby, Michael JL (1982), Navigating Troubled Waters, December, [Canadian Govt Publishing
Press], p.3-6, p.201-205, p.222-231, p.238, p.303, p.328, p.336-343

McClearn, Matthew (2002), Time to cut bait? Canadian Business, Toronto, (February 4), Vol.
75, Iss. 2; pg. 17, 1 pgs

McLeod, John (2002), More than tradition at stake in Newfoundland, The Halifax Daily News,
Daily Edition (February 3), p.38

Minister Gerry Reid, All-Party Committee Review of FPI Act, January 28, 2002, Internet:

Minister Gerry Reid (2002), Letter to Mr. Derrick Rowe, News Release, Govt Nfld Labrador
(January 4, 2002)

Minister’s two-year moratorium on northern cod that resulted in layoffs of 31,000 employees,
Globe & Mail (1992), Toronto Metro edition, (July 3), p.B1, B4

                                                                                    Page 25 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

Newfoundland Economic Conditions (1992), Provincial Report, v. 27(1) March, 1992 p.16-20

MacDonald, Michael (2001), A shudder of fear rolled through Newfoundland on Tuesday,
Canadian Press Newswire, May 1, 2001

Meek, Jim (1999), The new Shell Game, Canadian Business (April 30), vol 72 no 8, p 50-2,54+

Moore, Charles, Grimes may have sealed fate of FPI, Atlantic Fisherman, April 2002

Pearson, Kali, (2000), The Gambler [Profit guide], Internet:

Roe, Eric (2002), Clearwater Fine Foods Inc backgrounder and Markets Distribution Charts for
1999 & 2000, e-mail (February 11)

Rowe, Derrick, President (2002), An Open Letter to All Shareholders of FPI, News Release,
Govt Nfld Labrador (May 1, 2001)

Rowe, Derrick, President (2002), Letter to Minister Gerry Reid, News Release, Govt Nfld
Labrador (May 9 & 18, 2001)

Rowe, Allan, CEO (2002), FPI Press Release (May 15), Internet:

Rubin, Sandra (2001), Dissident shareholders win fight to control FPI: board ousted, Financial
Post, May 2, 2001, p. C1, C10

Stokes Sullivan, Deana (2002), Message is clear: Directors have lost credibility, St John's
Telegram (February 3), p. A4

The Canadian Awards for Business Excellence, Atlantic Provinces Economic Council
Newsletter (1991), v. 35(7) October/November, p.3

Tutton, Michael, Seafood combo: FPI, Clearwater Merge, The Montreal Gazette, Friday, 7
September 2001, p. C10

Unemployment rate of 18.9% in Newfoundland, Atlantic Report (1992), v. 27(1) March, p.16-20

Canadian Business (1999), (Apr 30), Vol 72 no 8 p 50-2

                                                                                    Page 26 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

Annex A

FPI 2000 / 2001 Financial Report

FPI Limited
Consolidated Balance Sheets ( courtesy from FPI customer service)

                                    December 31,                                 December 31,
 (Dollars in thousands)             2001                                         2000
                                    (Unaudited)                                  (Audited)
     Current Assets
       Cash                                              1,577                            221
       Accounts receivable                              80,047                         76,043
       Inventories                                    129,010                        120,642
       Prepaid expenses                                  4,340                           6,693
       Future income tax assets                          2,114                             860
       Total current assets                           217,088                         204,459

     Capital assets                                    96,617                          93,622
     Future income tax assets                          18,555                          15,446
     Other assets                                     17,284                           13,880

                                                         349,544                      327,407


     Current liabilities
       Bank indebtedness                                       44,059                   23,004
       Accounts payable and accrued liabilities 45,935                                  37,122
       Current portion of long-term debt                       10,678                   11,057
       Total current liabilities                              100,672                   71,183

     Long-term debt                                            55,821                   62,275
                                                             156,493                  133,458

     Shareholders' equity
      Share capital                                           51,174                   48,053
      Contributed surplus                                     71,642                   73,064
                                                                                                              Page 27 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

       Retained earnings                                      67,229                    70,965
       Foreign currency translation adjustment                  3,006                     1,867
                                                             193,051                  193,949
                                                             349,544                  327,407

FPI Limited
Consolidated Statements
    of Operations                      Thirteen Weeks Ended Fifty-Two Weeks Ended
                                              (unaudited)                            (audited)
   (dollars in thousands,                             DEC. 31, DEC. 31, DEC. 31, DEC. 31,
    except per share amounts)                          2000         2000            2001          2000

   SALES                                              191,309 187,758 703,115                       723,153
   Cost of goods sold                                 168,488 167,539 623,392                       638,265
     Gross Profit                                     22,821           20,219         79,723          84,888

   Commission Income                                       698             756         2,988           3,271
                                                        23,519          20,975         82,711         88,159

   Administrative and marketing
    expenses                                            12,499          10,733         47,086         46,154
   Depreciation and amortization                         2,460           2,290         10,113          9,525
   Provision for incentives and
    profit sharing                                          502             602         1,800          2,570
   Operating income before
    the under noted                                       8,058           7,350       23,712         29,910
     Interest                                             1,674           1,933         5,731          6,742
     Unusual Items                                       1,868                -       14,543                 0
   Income before income taxes                            4,516            5,417         3,438         23,168
     Income taxes                                        2,657            2,244        4,445           9,615
    PERIOD                                               1,859            3,173 (1,007)              13,553

    Basic                                                 0.12             0.21        (0.07)           0.90
    Diluted                                               0.12             0.20        (0.07)           0.86

                                                                                                               Page 28 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

   Weighted average common
   shares outstanding
    Basic                                             15,383            15,009        15,143         15,103
    Diluted                                           15,395            15,189        15,143         15,782

   FPI Limited
   Consolidated Statements              Thirteen Weeks Ended              Fifty-Two Weeks Ended
   of Retained Earnings
                                                  (unaudited)                    (audited)
   (dollars in thousands)                             DEC. 31, DEC. 31, DEC. 31, DEC. 31,
                                                          2001             2000          2001          2000
   Retained earnings,
     beginning of period                              66,062            68,354        70,965         59,569
   Net income (loss)
    for the period                                      1,859             3,173        (1,007)       13,553
                                                      67,921             71,527         69,958 73,122

   Dividends                                              692                562         2,729        2,157
   Retained earnings,
    end of period                                     67,229             70,965         67,229 70,965

   FPI Limited
   Consolidated Statements
    of Cash Flows                 Thirteen Weeks Ended Fifty-Two Weeks Ended
                                  (unaudited)                  (audited)
   (dollars in thousands)                              DEC. 31,          DEC. 31, DEC. 31, DEC. 31,
                                                             2001       2000             2001          2000
     Net income (loss)                                  1,859               3,173 (1,007) 13,553
     Add (deduct) items
      not affecting cash
       Depreciation and
        amortization                                    2,460               2,290       10,113 9,525
       Future income tax                                 (81)                 818       (3,153) 2,581
       Net loss on disposal
        of capital assets                                  (3)                  -            84        (39)
       Provision for investment
        in joint venture                                     -                  -         2,329            0
       Write-down of
        capital assets                                       -                  -              682         0
                                                                                                              Page 29 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

   Cash generated from operations
    before the undernoted                               4,235          6,281            9,048 25,620
   Changes in non-cash working
    capital balances
    related to operations:
       Accounts receivable                           (6,507)        (3,013)            (3,224)        4,862
       Inventory                                      19,308        46,992            (3,730)        1,410
       Prepaid expenses                                 1,304          1,110            2,429 (1,053)
       Accounts payable and
        accrued liabilities                             1,346       (6,402)             7,480           114
   Foreign currency
    translation adjustments                           (1,922)          (387)          (3,442)        (903)
   Accrued benefit asset                                 (698) (2,225)                (2,887) (2,121)
   Cash provided by operating
    activities                                        17,066        42,356              5,674 27,929
       Additions to capital
        assets                                        (5,413)        (1,845)        (14,874) (8,322)
       Proceeds from disposal
        of capital assets                                     0          -                   11      1,100
       Mortgages receivable                               (82)          (643)            1,128       1,757
       Other investing
        activities                                      (355)           (364)          (1,928)        (464)
   Cash applied to investing
    activities                                        (5,850)        (2,852)         (15,663) (5,929)
       Issue of long-term debt                           3,063       10,000              3,063 10,000
       Repayment of
        long-term debt                                    (921) (1,133)               (11,359) (8,439)
       Net change in
        short-term bank loans                         (12,070) (47,356)                 20,018 (20,256)
       Dividends paid                                      (692)        (562)           (2,729) (2,157)
       Issue of common shares                               236            40             3,934        1,131
       Repurchase of
        common shares                                          -      (1,045)           (2,235) (3,141)
   Cash (applied to) provided
    by financing activities                           (10,384) (40,056)                 10,692 (22,862)

   Effect of exchange rate
    changes on cash                                         189           (23)               653         167
                                                                                                              Page 30 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

   Change in cash position
    during the period                                     1,021         (575)              1,356        (695)
   Cash position,
    beginning of period                                      556           796                221         916
   CASH POSITION, END OF PERIOD                           1,577            221              1,577         221

   Supplemental cash flow information
   (dollars in thousands)
   Cash paid for:
       Interest                                           1,411          1,672              6,226       7,439
       Income taxes                                       1,511          2,369              6,634       7,279

                                                                                                              Page 31 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

Annex B

Monthly Average of the Stock Prices

  Date      Price $
1966-01        4.77
1996-02        4.73
1996-03        4.64
1996-04        4.56
1996-05        4.68
1996-06        4.63
1996-07        4.76
1996-08        5.03
1996-09        5.25
1996-10        5.62
1996-11        5.87
1996-12        5.29
1997-01        5.81
1997-02        6.10
1997-03        6.33
1997-04        6.26
1997-05        6.31
1997-06        7.06
1997-07        7.38
1997-08        6.86
1997-09        6.48
1997-10        6.57
1997-11        7.23
1997-12        6.98
1998-01        6.32
1998-02        6.16
1998-03        6.40
1998-04        6.82
1998-05        7.15
1998-06        6.49
1998-07        6.14
1998-08        5.76
1998-09        5.01
1998-10        4.67
1998-11        5.03
1998-12        4.98
1999-01        5.05
1999-02        5.08
1999-03        5.03
1999-04        5.53
1999-05        6.25
1999-06        6.28
1999-07        6.70

                                                   Page 32 of 33
CASE STUDY: Clearwater Fine Foods Recent Venture

1999-08       6.59
1999-09       6.42
1999-10       6.21
1999-11       8.23
1999-12       8.06
2000-01       8.33
2000-02       9.18
2000-03       9.83
2000-04       9.10
2000-05       9.04
2000-06       9.12
2000-07       9.01
2000-08       9.15
2000-09       9.01
2000-10       8.91
2000-11       9.04
2000-12       9.01
2001-01       9.04
2001-02       8.88
2001-03       9.16
2001-04      10.63
2001-05      10.06
2001-06       9.66
2001-07      10.54
2001-08      10.40
2001-09      10.39
2001-10       9.74
2001-11       9.18
2001-12       8.88
2002-01       9.19
2002-02       7.89
2002-03       8.09
2002-04       8.03
2002-05       8.79
2002-06       8.59
2002-07       8.46

                                                   Page 33 of 33

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