By: The Working Forest Staff
The Globe & Mail — A company controlled by B.C. billionaire Jim Pattison plans to take forestry firm Canfor Corp. private with a $981.7-million cash offer that comes during an industry slump.
According to a report by The Globe & Mail, Great Pacific Capital Corp. is offering $16 a share for Vancouver-based Canfor’s stock that it doesn’t already own, or 82 per cent higher than the close of $8.80 on Friday.
“The elimination of the significant administrative expenses incurred in maintaining a public company listing in Canada will allow for reinvestment of these funds into stabilization of the company’s operations,” Great Pacific said in a statement late Sunday. The statement also says that Canfor is facing strategic and capital decisions that are “best suited to a private company with a long-term focus.”
The 90-year-old Mr. Pattison has a reputation for his long-term investing strategy, sticking with companies through industry downturns.
Great Pacific acknowledged the challenges facing Canfor, which is Canada’s second-largest lumber producer.
The forestry sector is going through tough times with low lumber prices, and Great Pacific pointed out the difficulties “particularly in British Columbia, where the industry environment remains particularly uncertain and challenging.”
Mr. Pattison also owns more than 10 percent of Canada’s largest lumber producer, West Fraser Timber Co. Ltd. Two years ago, his lumber interests raised speculation about a potential merger between Canfor and West Fraser.
Instead, Sunday’s announcement means Great Pacific would take Canfor private by acquiring the 49 percent of shares that are currently widely owned.
At $16 a share, that gives a total market capitalization of $2-billion for Canfor’s 125.22 million common shares.
Great Pacific said its “ability to complete the proposed transaction is not subject to financing or due diligence and provides immediate liquidity for minority shareholders.”
Canfor responded on Sunday night with a cautionary note: “Canfor cautions its shareholders and potential investors that the indicative offer is non-binding on Great Pacific and there can be no certainty that the indicative offer or any other strategic transaction with Great Pacific or any other person will be pursued by Canfor.”
West Fraser and Canfor are primarily lumber producers, although they are also major makers of pulp and paper.
“Great Pacific believes the proposed transaction offers fair value for the shares, is a significant opportunity for the company’s minority shareholders and is in the best interests of the company and its stakeholders,” according to Great Pacific’s statement.
Great West said the offer will need the approval of a majority of the shares that it does not own. The company also said that it understands that Canfor’s board will establish a special committee of independent directors to formally prepare a valuation of Canfor shares, and to issue and opinion on the fairness of the proposed transaction. The committee is also expected to recommend to shareholders whether to support the proposal, Great West said.
Large swaths of beetle-infested trees have been harvested in the B.C. Interior over the years and the supply of damaged timber is declining. The constraints in timber supplies are a major problem, industry analysts say.
In 2014, in the B.C. Interior community of Quesnel, Canfor closed its sawmill and West Fraser kept its plant open, while West Fraser shut down its mill in the B.C. town of Houston and Canfor continued operating its facility in the same community.
Canfor and West Fraser said the mill shutdowns were necessary because of the continuing ripple effect from mountain pine beetles that damaged timber in the B.C. Interior, reducing available supply. The infestation of beetles began in the late 1990s and peaked in 2005.
Great West added on Sunday that Canfor “is facing important strategic and capital decisions, which Great Pacific believes are best suited to a private company with a long-term focus.”
Canfor is among the Canadian lumber producers hurt by U.S. duties on softwood shipped south of the border.
The U.S. Department of Commerce started slapping preliminary duties on Canadian softwood in April 2017. The final combined tariffs took effect in early 2018. Those duties work out to a weighted average of 20.23 percent, consisting of 14.19 percent in countervailing duties and 6.04 percent in anti-dumping levies against most Canadian lumber shipments.
The Canadian government argues that when lumber prices were strong in 2014, U.S. producers thrived, even with softwood from Canada flowing across the border.
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