Saputo Inc.

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Saputo Inc.

6869 Métropolitain Blvd. East
Saint-Léonard, Quebec H1P 1X8
Canada
Telephone: (514) 328-6662
Fax: (514) 328-3364
Web site: http://www.saputo.com

Public Company
Incorporated: 1954
Employees: 7,000
Sales: C$3.39 billion (US$2.3 billion) (2003)
Stock Exchanges: Toronto
Ticker Symbol: SAP
NAIC: 422430 Dairy Product (Except Dried or Canned) Wholesalers

Quebec's Saputo Inc. is Canada's number one dairy group, and, through a series of acquisitions in the late 1990s and early 2000s, has joined the top five North American dairy processors. Saputo has also taken its first steps on the global market, announcing its acquisition of Molfino, in Argentina, in October 2003. In addition to its flagship line of mozzarella cheeses, Saputo produces a wide variety of natural and specialty cheeses, including provolone, ricotta, cheddar, blue cheese, brie, camembert, and others. The company also boasts an array of brand names, ranging from its own Saputo brand, to Stella, Frigo, Dragone, Armstrong, Caron, and Cayer. A strong proportion of the group's sales come through industrial and foodservice channels. In addition to its core cheeses, Saputo, through its Dairyland, Baxter, and Nutrilait brands, is also Canada's leading producer of fresh milk, cream, butter, and other non-cheese dairy foods. The company operates through four primary divisions: Cheese (Canada), Cheese (USA), Milk, which is focused on the Canadian market, and Bakery. This latter, the company's smallest at less than 5 percent of sales, encompasses the Vachon brand, and includes such beloved Canadian snacks as Jos. Louis, Hop & Go!, Ah Caramel, and Passion Flakie. Listed on the Toronto stock exchange, Saputo remains controlled at 60 percent by the founding Saputo family, including Chairman Lino Saputo and his son and company CEO Lino Saputo, Jr. In 2003, the company posted sales of C$3.4 billion (US$2.3 billion).

Sicilian Success Story in the 1950s

Sicilian native and master cheesemaker Giuseppe Saputo arrived in Montreal in the early 1950s and began working as a laborer. By 1952, Saputo had earned enough to bring over his wife, Maria, and their eight children. Among them was fourth child, Emanuele, more familiarly known as Lino, who at 17 years old had just completed his high school education. In 1954 Lino, fearing that his father was losing his dignity as a laborer, encouraged him to set up a small cheesemaking operation in order to produce mozzarella cheese for the city's Italian community. As Lino told the Financial Post: "I knew he could do much better for himself, so with $500 I'd saved we started making cheese in a corner we rented at a downtown cheese factory."

The Saputo family's initial production was limited to just ten kilos (22 pounds) per day. Lino himself took charge of delivery, using his bicycle. Within a few months, however, the family bought its first truck, and by 1957, demand for the Saputo family's cheese had grown so strongly that the family established its own factory, in the Montreal suburb of St. Leonard.

By the end of the 1960s, Saputo's sales had spread beyond Quebec, into Ontario and the Maritimes regions, although the bulk of the company's production remained targeted at the Montreal market. In order to support its expansion, Saputo began acquiring a number of Quebec dairies in the 1970s. By then, Lino Saputo had taken over as president and chairman of the company, after Giuseppe Saputo retired in 1969.

The company continued expanding nationally, adding operations in Manitoba and New Brunswick. By the end of the 1970s, Saputo had already become Canada's leading producer of mozzarella, eventually capturing more than one-third of the market. This position was supported by the company's 1981 purchase of a cheesemaking facility in Ontario. At the same time, Saputo built a new factory for itself in Mont Laurier to support its growth in its home Quebec region. In 1984, the company bought a new facility in Saint-Hyacinthe specialized in converting liquid whey—a byproduct of the company's cheesemaking operations—into whey proteins and lactose used by the food industry.

U.S. Entry in the 1990s

Saputo had long sought an entry into the U.S. market; yet that expansion was haunted by an incident in the early 1960s. In 1964, New York mafia boss Joseph Bonanno had attempted to gain Canadian citizenship in order to avoid U.S. prosecution, and to this end convinced Giuseppe Saputo to sell him a part of the family's business. Yet the Saputo family claimed that they had been unaware of Bonanno's reputation, and canceled the deal as soon as they learned of Bonanno's mafia connections. Nonetheless, the family company long lived under the shadow of its purported link to Bonanno—the company was even raided in 1972 by Montreal police. The police found no evidence of a mob connection, however. As Lino Saputo told Maclean's: "I can tell you, I've worked honestly all my life."

By the late 1980s, Saputo was ready to enter the United States. In 1988, the company made its first acquisitions in its southern neighbor, buying up cheesemaking factory in Vermont and Jefferson Cheese, located in Hancock, Maryland. Yet Canada remained the company's primary focus into the early 1990s, where the company backed up its domestic operations with the opening of a new headquarters, production, and distribution facility in its Saint-Leonard home.

Mozzarella remained the company's core product line into the mid-1990s as well. Still, as it faced the new century—and the coming end to trade barriers set up by the Canadian government to protect the country's dairy industry—Saputo launched a new, more aggressive expansion strategy.

In 1996, the company bought Fromages Caron, based in Beloeil, Quebec, giving it a new distribution arm specializing in imported cheese specialties, and especially French cheeses such as brie and camembert. The following year, however, marked still more significant changes for the company.

Saputo's next acquisition target was Canada's Ault Foods, a maker of cheese and butter, that had sold its fresh dairy business the previous year. However, Saputo's C$360 million bid was rejected as too low by Ault, which accepted an offer by Italy's Parmalat instead. In response, Saputo turned to a new market altogether, buying up Crémerie des Trois Rivières, also based in Quebec. That acquisition enabled Saputo to extend its operations into the fresh dairy, including liquid milk, and frozen dairy markets.

Saputo's thrust, nonetheless, remained its core cheesemaking operations. After being thwarted in a second attempt to acquire a Canadian company, the company turned its acquisitive eye on the U.S. market. At the end of 1997, the company reached an agreement to acquire Illinois-based Stella Foods from Bass Brothers unit Specialty Foods Corporation for C$563 million. In order to pay for the acquisition, Saputo went public as Saputo Group Inc. on the Toronto stock exchange in October, in what was one of the country's most successful initial public offerings of the year. As a result, the Saputo family reduced its stake in the company to just 70 percent. In the process, however, Lino Saputo became one of Canada's wealthiest men.

Going Global for the New Century

The acquisition of Stella Foods not only gave Saputo a range of new brand names, including Stella, Frigo, Dragone, and others, it also tripled Saputo in size—pushing sales past C$1.5 billion and giving the company a place among the United States' leading cheesemakers, with a 9 percent market share.

Saputo's drive to solidify its position as one of North America's leading dairy products companies brought it to the U.S. cheesemaking capital of Wisconsin with the purchase of Avon-more Cheese Inc. and Waterford Food Products, formerly part of Ireland's Avonmore Waterford Group (later Glanbia plc). The purchase, for US$36 million, yielded more than US$180 million in new revenues, boosted Saputo's Italian cheese production, and added food ingredient production operations, including powdered and condensed milk products. Saputo continued its acquisition campaign in 1998, buying Riverside Cheese and Butter, based in Trenton, Ontario, and Bari Cheese Ltd., an Italian specialty cheese producer based in Vancouver.

Saputo began looking for new acquisitions in 1999, with a particular interest in consolidating its share of the U.S. mozzarella market—that cheese segment had become particularly attractive, due to the increasing popularity of pizza, and also to the growing tendency for time-pressed consumers to turn to frozen and other prepared foods, including pizza and lasagna.

Nonetheless, Saputo's next acquisition took it into a new product category altogether. Backed by the SGF (Société Generale de Financement du Quebec), Saputo played the role of white knight when it agreed to acquire Quebec-based Culinar Inc. for C$282 million, beating out a rival offer from Interstate Bakeries, controlled by Ralston Purina. The Culinar acquisition gave Saputo its first taste of baked goods, including leading Canadian brand Vachon. The deal also added another C$315 million to Saputo's annual sales.

At the same time, Saputo, which had earned itself the nickname as the "Mozzarella King" because of its nearly 40 percent share of the Canadian market, continued to broaden its offerings beyond that core product line. In January 2000, the company took a step in that direction by paying C$20 million to acquire Quebec's Cayer-JCB in order to access that company's expertise in the production of European-style cheeses, including havarti, brie, feta, and goat cheeses.

Company Perspectives:

Our Values. We are guided by the highest standards of quality in the industry. Not a minute goes by that we do not focus our total attention on the products that, from our production plants to your table, are the basis for our pride.

In 2001, the company's milk division acquired another scale altogether when Saputo purchased former dairy cooperative Dairyworld Foods, based in Vancouver, for C$400 million. That deal boosted the company's revenues past C$3 billion, making it the fifth largest dairy group in North America. Soon after that deal, the company found a home for the cookie, bread, and soup operations acquired with Culinar in family-owned Dare Foods Inc. In exchange, Saputo gained a 20 percent stake in Dare.

Saputo restructured in 2001, creating four operating divisions, Cheese (Canada), Cheese (USA), Milk, and Bakery, to reflect its expanded organization. By then, the company had already simplified its name to Saputo Inc., in a move to highlight its unified status.

Saputo's external expansion slowed down a bit in 2002, as it moved to integrate its newly acquired operations. Nonetheless, the company completed the purchase of a new mozzarella and provolone processing plant in Pennsylvania from ConAgra that year. The company returned to ConAgra in 2003, buying up the Treasure Cave and Nauvoo brands from ConAgra. That purchase gave Saputo a leading share of the North American blue cheese market.

At this time, Lino Saputo announced his intention to retire in 2004, and his decision to turn over the chairman and CEO positions of the company to son Lino, Jr., who had been serving as CEO of the company's Cheese USA division. Yet the elder Saputo had not finished guiding the company's expansion. In October 2003, the company signaled the start of a new direction when it announced an agreement to acquire the third largest dairy producer in Argentina, Molfino Hermanos SA, for US$51 million. The acquisition represented Saputo Inc.'s first step on its next frontier—that of the global dairy products industry.

Key Dates:

1954:: Lino Saputo and parents Giuseppe and Maria Saputo begin making mozzarella cheese in Montreal in space rented in a local cheese factory.
1957:: Saputo opens its first company-owned cheese factory in Saint Leonard, a Montreal suburb.
1969:: Giuseppe Saputo retires and Lino Saputo becomes chairman and builds company into Canada's largest dairy products group.
1981:: After expanding by acquiring a number of dairies in Quebec, Saputo buys a cheese plant in Ontario.
1984:: Company acquires plant to process whey protein, lactose, and other food ingredients from liquid whey byproducts.
1988:: Saputo enters U.S. market with purchase of facility in Vermont and cheesemaker in Maryland.
1996:: Saputo acquires Fromages Caron in Quebec, adding that company's cheese import and distribution business.
1997:: Company enters liquid milk and ice cream markets with purchase of Crémerie des Trois Rivières; goes public with listing on Toronto exchange; triples in size through purchase of U.S.-based Stella Foods.
1998:: Company acquires Wisconsin cheese operations from Avonmore Waterford; acquires Vancouver's Bari Cheese.
1999:: Saputo buys Culinar, the leading maker of snack cakes and other baked goods in Canada.
2000:: Company acquires European cheese specialist Cayer-JCB.
2001:: Company acquires Dairyworld Foods to become leading dairy products group in Canada; restructures into four primary divisions.
2003:: Saputo moves onto global cheese market through acquisition of Molfino Hermanos, the third largest dairy products group in Argentina.