Rick Doman buys Domtar sawmills
June 16, 2010
By: Ron Grech
As the prospective new owner of Domtar’s forest product operations, Rick Doman plans to aggressively take advantage of what he sees to be a widening European market.
"We see a tremendous opportunity to grow in Eastern Canada because of what we see going on around the world with softwood log shortages, particularly with the mountain pine beetle in the B.C. interior, and the problems that are developing … with the Russian logs tax restricting exports to Asia and to Europe from Russia," the president and chief executive of EACOM Timber Corporation told The Working Forest while in Timmins recently for a meeting with Domtar senior management.
EACOM struck a deal in April to acquire Domtar’s forest products operations. The transaction includes five operating sawmills in Ontario and Quebec, two non-operating mills in Ear Falls, ON and Ste-Marie, QC., a remanufacturing operation in Sullivan, QC as well as Domtar’s shared interests in both a flange I-joist manufacturing facility in Sault Ste. Marie, and a fully-operational sawmill, Elk Lake Planing Mill Limited, in Ontario.
"EACOM plans to invest in our sawmills over the next few years to ensure they are prepared to compete in the global lumber market," said Doman.
The Domtar mills produce a combined total of about 900 million board feet a year.
"There’s an opportunity to expand production through better recovery," Doman said.
As part of the transaction, EACOM will also receive the harvesting rights to approximately 8 million hectares of timberland in Ontario and Quebec.
"The company will basically be debt free with surplus cash on its balance sheet to potentially look at other acquisitions in the forest sector, particularly here in Ontario and Quebec," said Doman. "We have raised $145 million in EACOM and those funds will sit in escrow until the transaction closes" which Doman hopes will happen before the end of June.
"Now that’s a lot more funds than we need to acquire these assets because we paid $80 million plus working capital which we expect will be around $30-$40 million. So it will be an acquisition price of about $110-$120 million out of which Domtar is taking 19 per cent of the acquisition price in shares. Domtar will end up with a small ownership but it will be meaningful, likely 10-11 per cent."
Doman added, "The closing date is subject to approval of the transfer of forest licences in Ontario and Quebec to EACOM."
He doesn’t anticipate any problems receiving the two provincial governments’ approvals for those transfers. Doman remarked that government support has been very positive towards EACOM.
Past experience has shown the Canadian forest industry is too much at the mercy of the United States said Doman.
"Our view of the future is that we can’t be reliant on just the U.S. market," he said. "We appreciate the business, the customers there. However, we’re going to focus more and more in Canada and one of the areas of growth would be selling more in Quebec and Ontario. There are 20 million people here. We’d like to service many of our clients here and expand on that … then maybe diversify, a little less into the U.S., and go more into the United Kingdom and northern Europe in particular. The U.K. is a very strong market and northern Europe has great potential, particularly Belgium, Italy, Germany, France and some other countries in the region. On top of that, the Middle East, for some lower-grade material offers great opportunities – Saudi Arabia, Dubai and Kuwait. We know those markets well."
Doman said he believes in the careful management of corporate finances that supports expansion without taking on excessive debt obligations.
In fact, he said it was his aversion to corporate debt, and also his concerns about the U.S. housing market going forward, which put him at odds with the board of directors when he was chief executive of Western Forest Products in 2004.
"I believe in cautious growth," said Doman "I’ve always been against going into debt. But I was only one voice among many. The board decided they wanted to see the company grow quickly … Their vision was much different from mine and it was a vision that I thought would get them into trouble. My history is studying the markets, building up a surplus and expanding on a gradual basis."
EACOM is currently based in Richmond, B.C., but Doman plans to relocate the company to Montreal. He said he will retain Domtar’s management team led by Jean-Francois Merette.
"I think Domtar has done an excellent job in maintaining productive mills during some of the worst years in my life in the forest industry," Doman said.
Western Forest Products actually evolved from a family-owned business, Doman Industries Limited, which was started up by his father Herb.
The 46-year-old Doman started working in the industry for his dad at age 12, sweeping up sawdust.
"My dad made sure I got to experience the worst jobs. But I learned so much from him. I learned you have to work hard and earn your way and know the business from the bottom end up."
He was handling the company’s international sales in 2001 when he was asked to take over as chief executive from his father who had suffered a severe stroke.
The company was successfully restructured in July 2004 and the name changed to Western Forest Products.
"The new board of Western did not share my views on the future of the company, and then I was asked to leave. The shares were about 12 dollars per share when I left, and recently they have traded in the 30 cent per share range. I feel the vision our team had in 2004 was a good one, and Western would have done well if that vision had been supported," Doman said.
In addition to the assets being acquired through Domtar, EACOM currently owns one other operation, an idled sawmill in Big River, Sask., which it purchased in December.
"We’re working with the local community and the government of Saskatchewan, if we get the tenure, we would like potentially to start up the mill again," said Doman.
Even though Doman’s roots are in B.C., he has no interest in buying any mills within that province just yet. He objects to some of the decisions and policies the provincial government has implemented there which he feels has hurt the industry Canada-wide.
"A prime example, in 2001, I asked the B.C. government not to reduce stumpage fees" which it did in the wake of the mountain pine beetle infestation within the province’s interior.
Doman said that reduction in stumpage was the main reason that prompted the U.S. government to accuse Canada of selling subsidized lumber and to impose duties impacting the entire Canadian softwood industry.
"We’re very focused on Ontario and Quebec because that’s where we see tremendous opportunities," he said. "Until I see something different, I have no interest in the B.C. forest industry."◊