Two Quebec-based companies are looking to expand their reach and profits by forming one of Eastern Canada’s largest producers of treated wood, with seven plants in four provinces.
The joint venture would own Goodfellow Inc.’s three plants in Delson, Que., Elmsdale, N.S., and Deer Lake, N.L., and Lebel Cambium’s two Ontario plants (Bancroft and Caledon) and two Quebec plants (Degelis and St-Joseph).
Goodfellow Inc. of Delson (TSX:GDL, Forum) would be exclusive distributor for the joint venture.
“We think that this is really going to add to our ability to serve customers in terms of being more competitive,” said Goodfellow CEO Denis Fraser.
The union of the treated wood operations is expected to lower costs and boost profits by taking advantage of Goodfellow’s distribution capability to improve sales, especially in Ontario, while reducing transportation costs. Some plants will also specialize in certain products.
The joint venture is expected to post more than $100 million in annual sales and add about $50 million to the $500 million in annual sales Goodfellow posted in 2014.
Profits will be shared between the partners, who will continue to operate their other wood operations.
Goodfellow said treated wood used mainly for decks, fences and gazebos will rise to about 18 per cent of its overall sales from 10 per cent before the deal.
Goodfellow is a distributor and manufacturer of lumber and hardwood flooring while the family-owned Group Lebel Cambium operates several sawmills from its headquarters in Riviere-du-Loup, Que.
The deal is expected to close in the fourth quarter.
The treated wood operations will employ about 100 workers with no closure of facilities planned. Goodfellow currently has some 900 employees and Lebel 600.
The joint venture comes less than a year after Richard Goodfellow retired after 42 years, including a quarter century guiding the company founded by his ancestors in 1898.
By joining forces with Lebel, Goodfellow said its treated wood operations will likely be the largest in Eastern Canada, close in size to Stella-Jones (TSX:SJ, Forum).
Goodfellow, Stella-Jones, CanWel Building Materials (TSX:CWX, Forum) and Marwood Ltd. account for about 80 per cent of the market.
Stella-Jones, which also sells treated railway ties and utility poles, said it doesn’t expect to see a bigger threat from a more efficient competitor it already faces.
“We don’t see them coming to take market share from us necessarily,” chief financial officer Eric Vachon said in an interview.
About half of Stella-Jones’ $128 million in annual residential sales come from Canada, but the company doesn’t disclose how much comes from Eastern Canada.
The Goodfellow joint venture would also cover eventual sales to the U.S. or Western Canada. Fraser said it would look to acquire production capabilities west of Ontario, since most treated wood is sold to nearby customers.