Executive Council
Fisheries and Aquaculture
May 28, 2007

Government Announces Approval in Principle for Sale of FPI Assets

Today the Provincial Government announced that it has approved in principle the sale of the assets of Fishery Products International Limited (FPI). This approval comes following months of executing the necessary due diligence and in seeking assurances for the long-term protection of FPI workers, communities and the overall provincial fishing industry. The Provincial Government has achieved its goal of securing operating commitments for the people and communities that depend on FPI and getting people back to work in a secure and meaningful way.

The Honourable Danny Williams, Premier of Newfoundland and Labrador, and the Honourable Tom Rideout, Minister of Fisheries and Aquaculture, today announced that the Provincial Government has reached two separate Memoranda of Understanding (MOU) with Ocean Choice International (OCI) Incorporated and High Liner Foods Incorporated for the sale of various FPI assets. The MOUs also outline the terms and conditions that will accompany the successful completion of those transactions and provide the necessary protections for the province�s interests. The sale remains conditional upon the signing of final binding legal agreements between both companies and FPI, which is expected in the coming weeks. The Provincial Government will also approve the sale of The Seafood Company, a primarily independent business unit located in the United Kingdom, which will be sold to interests in Europe.

"After much deliberation, including months of extensive negotiations with the companies involved and the union, our government is satisfied with the protections and benefits that we have achieved for the workers and communities dependant upon FPI," said Premier Williams. "The Memoranda of Understanding that we have signed with the parties involved will provide security and stability to thousands of workers throughout this province, under a new company and management team. In addition to achieving multi-year commitments in all current FPI communities, we are also pleased to have secured meaningful futures for the towns of Fortune, Burin and Marystown. The people in these communities have been under tremendous pressure and our government has worked diligently to ensure those impacted are protected."

The Premier added that both OCI and High Liner have been exemplary corporate citizens in the province. OCI is part of the Penney Group of Companies which has been a long-term participant in the province�s business community and High Liner has been a very reputable player in the global seafood industry for the last century.

The Provincial Government has achieved a five-year agreement for the sustained operation of existing FPI facilities, where traditional levels of employment will be maintained. This includes the secondary processing facility at Burin, for which an enhanced operational plan has been achieved. Both companies will also make significant investments in the province. OCI will spend $8 million over two years in capital improvements at the processing facilities, while High Liner will invest $3 million in capital expenditures and research and developmental initiatives.

"In addition to the immediate benefits that would be associated with this transaction, the deal also includes a series of conditions that will be triggered should either company fail to honour their commitments," said Minister Rideout. "These include financial compensation for the Provincial Government and the workers involved, as well as our government�s right-of-first-refusal, in the case of OCI, should that company attempt to sell various assets. I should also point out that this transaction provides new life for the people of Fortune, as we have made it a condition of sale that FPI and OCI proceed expeditiously with the transfer of the Fortune facility to Cooke Aquaculture."

Furthermore, the Provincial Government has entered into an MOU with the federal Department of Fisheries and Oceans for a nine-year condition of licence on the quotas currently held by FPI. Under the MOU, groundfish licences and allocations will be issued to an OCI licence-holding company with requirements to land these quotas in Newfoundland and Labrador. The Provincial Government will hold a 49 per cent interest in this quota-holding company. A key element of the new quota arrangements is that should OCI breach its obligation to land the quotas in the province, the Provincial Government can take over the quota-holding company so that proper compliance can be reinstated.

To conclude this transaction, Minister Rideout advised that the FPI Act would have to be effectively repealed, with the possibility that certain sections would be retained. The legislation will be brought forward to the House of Assembly in the coming days, but will not be proclaimed until final binding agreements have been achieved.

"The sale of FPI, constituting the agreements that we have achieved, will be a major step forward in strengthening the seafood processing industry in this province," said Premier Williams. "When concluded, this transaction will significantly strengthen the province�s seafood producing industry. It represents another critical piece of our strategy for fishing industry renewal and the attainment of an economically viable and globally competitive fishery."

"Since 2001, it is clear that FPI has pursued a business strategy that has been incompatible with the public policy objectives of the Provincial Government and communities that depend on the company," said Minister Rideout. "The agreements we are announcing today hold the promise of finally rectifying that situation, and our approval of this sale is reflective of this government�s confidence in the industry to move forward in a productive way that will serve the best interests of all stakeholders."

"Our government has demonstrated unwavering and focused commitment to the fishing industry in Newfoundland and Labrador," added Premier Williams. "More than three years ago we purchased quota to ensure the continued operation of the plant in Arnold�s Cove, and we have committed more than $20 million to grow our aquaculture industry. Most recently, we announced an undertaking of approximately $140 million in our fishing industry renewal plan. This substantial commitment along with all of our other initiatives will serve to strengthen, renew and revitalize an industry that is the economic engine of many of our rural communities."


Media contacts:

Elizabeth Matthews
Director of Communications
Office of the Premier
709-729-3960, 351-1227
Lori Lee Oates
Director of Communications
Department of Fisheries and Aquaculture
709-729-3733, 690-8403



FPI Limited Asset Sale Process

The current sale of assets by Fishery Products International (FPI) Limited is the culmination of a process that essentially began in 2004 when the company first indicated that it was considering an income trust for its marketing arm. Since then there have been two iterations where the company attempted an asset sale.

The change in the Board of Directors in 2001 signaled a change in direction for FPI. The new Board and CEO Derrick Rowe promised great things for the company. This included expanded operations, no layoffs and a change in operational philosophy that would "unlock the value." The reality, however, has been somewhat different with permanent plant closures, declining profitability and an extremely poor relationship with its employees, communities and government.

Since 2001, plants have closed in Harbour Breton, Fortune and Baine Harbour, leaving communities devastated. Governments have been forced to change the FPI Act twice since 2001. As well, the approach taken by the company has left some people to question FPI�s commitments to its other facilities, including Marystown, Burin and its inshore operations.

FPI and potential suitors approached government in 2006 with a proposal for the sale of its primary operations to local operators. The Barry Group and Ocean Choice International (OCI) Incorporated entered into negotiations with FPI. Ocean Choice emerged as the preferred suitor. However, this process ended in the summer of 2006. OCI and FPI were unable to reach an agreement.

Again in the Fall of 2006, FPI and potential buyers reopened the possibility of asset sales. This new process began in earnest in December and early January and is the process that continues today. Under this process, OCI and High Liner Foods Incorporated have emerged as preferred bidders for FPI�s assets. Government�s objectives have centered on protecting the public interests related to the operation of facilities and access, harvesting and processing of quotas.

As part of this process to protect the public interests, once FPI had indicated acceptable bidders, government sought commitments from the companies. These commitments, if the sale of assets proceeds, will bring greater stability to communities.

The process for the sale of assets is not complete. Government, High Liner and OCI have to turn the MOUs developed into binding contracts. At the same time, the lengthy process entered into by the companies is not over. Binding agreements have not been signed with FPI. Once this is done, it will take weeks for the two publicly traded companies to get final approvals and for OCI to finalize its purchases. Furthermore, the FPI Act has to be changed and this will require concurrence of the House of Assembly.

Government expects that the debate in the House of Assembly will focus on the commitments that these companies will provide for communities and the protections that have been given the companies. The MOUs will be tabled as part of the legislative process. Only until final binding contracts are entered into by Government, OCI and High Liner, and the final sales completed, will the legislation be proclaimed.

Quota Arrangement

The Government of Newfoundland and Labrador will sign a Memorandum of Understanding with the federal Department of Fisheries and Oceans for a nine-year condition of licence agreement on the quotas that are currently held by Fishery Products International (FPI) Limited and that will be fished by Ocean Choice International (OCI) Inc.

This arrangement involves the issuance of a condition of licence requiring that groundfish quotas currently held by FPI be landed in Newfoundland and Labrador, with minor tolerances for the trading of Enterprise Allocations. Furthermore, the fish will have to be landed in a specified form of either fresh or frozen whole (headed and gutted). The licence will be issued for a period of nine years, thus ensuring that the condition of licence is enduring.

The quotas will be transferred to a company owned 49 per cent by the Provincial Government and 51 per cent by OCI. In the event that OCI violates its landing requirement, the Province can assume a 100 per cent interest in the holding company and take appropriate action. The province will have two years to find a remedy, including the possibility of finding a new operator. Furthermore, the Provincial Government will have the right to acquire the Marystown facility at fair value.

The nine-year condition of licence will provide the province with greater security over the life of the arrangement than out right ownership of the quotas would have. The requirement for OCI to land fish in this province and in a form with minimum at-sea processing sets a precedent for the groundfishery in this country. This has never been done before and is a very significant achievement. Once the fish is landed in the province, it must be processed here in accordance with the provisions of the Fish Inspection Act.

In addition to the condition of licence that guarantees the landing of the fish in Newfoundland and Labrador, the province will have effective contractual arrangements with OCI to further enforce this agreement. If OCI violates its landing requirements, the province has the right to take control of the quota-holding company and reserves the right to make arrangements with another operator.

A Compliance Evaluation Panel will be established to monitor the company�s activity and make determinations as to whether the company is in non-compliance. The panel will report to both the provincial Minister of Fisheries and Aquaculture and the federal Minister of Fisheries and Oceans, with membership from both departments and the Fish, Food and Allied Workers. OCI will have ex-officio representation on the panel.

Ocean Choice International Inc.

Ocean Choice International (OCI) Inc. has provided the Provincial Government with a comprehensive plan to operate Fishery Products International (FPI) Limited�s primary processing facilities. OCI has signed an MOU with the Provincial Government, committing to operate the FPI facilities that it will acquire. A binding agreement between OCI and FPI is expected to be reached within the coming weeks. An interim arrangement to operate the company�s processing facilities is in place.

OCI has agreed to spend approximately $8 million over two years in capital improvements at the plants it will acquire from FPI.

As well, employment levels will remain at levels recently seen at the FPI facilities over the five-year commitment period of 2007 to 2011.

  • The Marystown facility will remain at the status quo, with 400-500 people processing groundfish year-round;
  • The Bonavista facility will remain at the status quo, with 220-240 people employed. Approximately 1 million pounds of crab will be added to the operation from OCI�s current operations;
  • The Triton facility will remain at the status quo, with 180-190 people employed;
  • The Port Union facility will remain at the status quo, with 160-170 people employed;
  • The Port au Choix facility will remain at the status quo, with 150-160 people employed;
  • The Dildo facility will employ 30-40 people, which represents a significant enhancement of this operation.
  • There will be significant changes at the Marystown facility. The operational configuration of the plant will have to be revised. The equipment and power facilities will be modified. The plant is expected to employ 400 to 500 people on a rotating two-shift basis.

    Groundfish quotas will be held in a holding company owned by both the company and the province. As part of the contractual commitments associated with the quotas, the province will have the right to acquire the Marystown facility at fair value should the province assume control of the holding company.

    OCI has entered into an arrangement that will result in the transfer of the Fortune facility to Cooke Aquaculture, at the request of the Provincial Government. FPI has agreed to expedite this transfer. The Cooke Aquaculture initiative will ensure 120 person years of employment at that facility.

    OCI has committed to keep its scallop and shrimp operations for a period of five years. If these are to be sold after this period, the province has a right-of-first refusal to purchase the operations. Even if the shrimp operations are sold outside the five-year period, there will be a requirement for the vessels to continue to operate from the province.

    OCI has also committed to operate these plants for a period of five years. This is subject to normal constraints, such as availability of raw material and market conditions. In the event of a closure, the company will pay government $2-5 million dollars, per plant, to cover worker adjustment costs. The amount paid will depend on the size of the plant. As well, a termination fee of $5 million will be payable to the Provincial Government if certain conditions are breached, including the company�s failure to remain a Newfoundland and Labrador owned and operated firm, its failure to live up to its contractual commitments or a sale of its shrimp and scallop operations.

    High Liner Foods Inc.

    High Liner Foods Inc., a publicly-traded company, has emerged as the preferred bidder for the marketing and secondary processing arm of FPI. The High Liner proposal contained a number of commitments that will ensure that the Burin secondary processing facility continues to operate at or above historical employment levels. The company has signed a Memorandum of Understanding (MOU) with the Provincial Government.

    Last year, the province offered on two occasions to partner with industry to purchase the marketing arm of FPI. Failing a consensus by industry stakeholders, it was determined that High Liner would be the preferred bidder for that marketing arm. It should also be noted that the Provincial Government has committed $3 million over three years in the recent Fishing Industry Renewal strategy to establish a Newfoundland and Labrador Seafood Marketing Council.

    High Liner has committed to spending $3 million in this province over five years. This will consist of $1.8 million in capital expenditures at the Burin facility and $1.2 million in research and development funding.

    The company has also agreed to a number of concessions that restrict the ability of shareholders to take control of the company. These agreements are expected to be in place before a binding agreement is realized.

    High Liner has also entered into a marketing arrangement with OCI. This will ensure that the FPI marketing arm will remain an important aspect of the province�s inshore fishery. This three-year agreement provides for High Liner and OCI to cooperate in marketing local products.

    Under the MOU with High Liner, the Burin plant will be kept open for a minimum of five years with a minimum annual output of 17.5 million pounds in the first full year of operation. If the company closes the facility within this time period, the company will have to pay the Provincial Government approximately $2.5 million dollars to cover the cost of adjustment programs for workers. As well, a $5 million fee will be paid to the Provincial Government if the marketing arm is sold within five years. Under FPI, Burin would have seen significantly reduced activity and employment for 2007 and beyond.

    A binding agreement between High Liner and FPI is expected to be finalized in the coming weeks.

    2007 05 28                                              11:50 a.m.


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