From toilet paper to North Sea oil, corporate Canada holds a yard sale

February 7, 2022

By: The Working Forest Staff

THE GLOBE AND MAIL — Resolute Forest Products Inc. RFP-T hung a “For Sale” sign on its tissue division last week, making it the latest in a series of Canadian companies planning to exit businesses by tapping a robust pandemic-era mergers and acquisitions market.

CAPTION: Resolute chief executive Remi Lalonde, seen here in a file photo, said last week in a conference call that the North American tissue market needs to consolidate around its largest players.

Montreal-based Resolute announced it is conducting a “strategic review” of the unit – which sold US$161-million worth of paper towels and toilet paper last year – after potential buyers reached out in recent weeks. The offers came after the company partially shut down a Tennessee mill in December, laying off 350 employees.

CEOs are getting a warm reception from shareholders when they streamline their businesses. Last year, retailer George Weston Ltd. WN-T saw its share price soar after it sold its baking division for $1.6-billion. Dorel Industries Inc. DII-B-T stock spiked after the company sold its bicycle unit to a Dutch rival for US$735-million and paid out a special dividend.

Resolute has four major business lines. Its tissue unit is by far the smallest, contributing roughly 4 percent of last year’s $3.7-billion in sales. The unit is anchored by the facility in Tennessee, and by others in Florida and Maryland. Resolute sells a significant portion of its products to restaurants, hotels, and office buildings – customers that have cut orders during the pandemic.

Resolute chief executive Remi Lalonde, who took the top job 11 months ago, said last week in a conference call that the North American tissue market needs to consolidate around its largest players. “The question is exactly what role we can play in the future with the tissue business,” he said.

In North America, the paper towel and toilet paper sector are dominated by three producers: Georgia-Pacific LLC, Proctor & Gamble Co. PG-N, and Kimberly-Clark Corp. KMB-N

Last year, Resolute’s tissue business lost US$24-million, while the company’s overall profit was US$584-million. In a report, Scotiabank analyst Benoit Laprade said “while we do not expect a very high price tag for assets,” exiting the sector would eliminate costs associated with the Tennessee facility and free up capital for more profitable pulp, paper, and wood product divisions.

Companies selling businesses are taking advantage of buying interest from both strategic players – rival toilet paper makers, in Resolute’s case – and private equity fund managers, which are sitting on unprecedented amounts of capital.

Worldwide M&A activity totaled US$5.9-trillion in 2021, an all-time record, according to data firm Refinitiv. The pace of deal-making quickened in January, with companies announcing transactions valued at US$364-billion, up 28 percent from the same month last year.

In a recent report, law firm Osler, Hoskin & Harcourt LLP said the record level of takeover activity seen last year will continue in 2022, driven by corporate buyers that want to increase growth, and by demand from financial players, along with low-interest rates and supportive debt and equity markets.

“These fundamental drivers of M&A activity remain strong,” Osler said. “We are continuing to observe a robust cycle of deal-making activity for the final stretch of 2021 and the first half of 2022 across a range of sectors, including technology, real estate, metals and mining, and consumer products.”

Canada’s largest oil and gas companies are also taking advantage of the red-hot M&A market. Last week, Suncor Energy Inc. SU-T announced plans to sell its Norwegian offshore oil assets, and its minority interest in the North Sea Rosebank oil field. In January, Imperial Oil Ltd. IMO-A hired RBC Capital Markets to find a buyer for subsidiary XTO Energy Canada, which operates properties in Alberta’s Montney and Duvernay regions.

Calgary-based Suncor and Imperial made their moves at a time when oil and gas prices are rising and share prices are soaring at most energy companies.

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