(Adds details about Westface in lead and second paragraph and rewrites throughout.)

Ontario Teachers' Pension Plan, Maple Leaf Foods Inc.'s (MFI.T) largest shareholder, is selling a 10% stake in the food-processing company to activist investor Westface Capital, setting the stage for a potential showdown between Westface and Maple Leaf Foods management.

A spokesman for Toronto-based Westface declined to comment. However, the hedge fund's previous activist efforts are well known. For example, it stymied Total S.A.'s (TOT) initial efforts to acquire Canadian oil-sands company UTS Energy Corp. (UTS.T), agitating for a higher bid, which Total eventually offered to secure a transaction. In addition, Greg Boland, Westface's chief executive, sits on the board of Ace Aviation Holdings Inc. (ACE.B.T), and is considered a key player in the expected wind-up of the holding company. Westface is one of ACE's largest shareholders.

A Maple Leaf spokeswoman wasn't immediately available for comment.

The Teachers'-Westface transaction comes at a time when Maple Leaf's stock has sharply underperformed its peer group and Ontario Teachers has expressed its own frustration with Maple Leaf.

"While we have been a long-term and supportive investor of MFI, this sale opportunity was in the best interests of the fund and our members," Teachers' said. It said its current plan is to work with the company to maximize the value of its remaining investment in Maple Leaf.

Ontario Teachers still owns a 25% stake in Maple Leaf, but said it continues to consider its options for this position.

Teachers' continues to oppose Maple Leaf's shareholder rights plan, arguing that the plan prevents it from exercising its legal rights as a shareholder.

In late June, Maple Leaf adopted a shareholder rights plan, which it said coincided with the termination of a shareholders agreement between its two biggest shareholders, McCain Capital Corp. and Teachers'.

Teachers' will sell 3.4 million voting shares and 10.3 million non-voting common shares of Maple Leaf, as well as 2,193,913 warrants exercisable into voting shares, to West Face. The sale cuts Teachers' stake in the Toronto company to 25.23% from 36.27%.

In Toronto Tuesday, Maple Leaf is up 35 Canadian cents, or 3.9%, to C$9.35 on 65,000 shares.

-By Ben Dummett, Dow Jones Newswires; 416-306-2024; ben.dummett@dowjones.com

(Judy Mckinnon in Toronto contributed to this article.)