By: Financial Post
Much like his company, Peter Wijnbergen doesn’t feel the need to keep a high profile.
Wijnbergen, 58, works out of an unassuming cubicle in Norbord Inc.’s head office in Toronto, like the rest of the staff. It could just as easily belong to an intern and a visitor wouldn’t know the difference. The corner space that would typically house executives is a lunch room.
That suits Wijnbergen, who is not the sort of CEO who worries about status or formality. Back in 2007, he spent a year running a Norbord facility in Jefferson, a small, east Texas town straight out of Friday Night Lights. He showed up the first day in khakis and a polo shirt, thinking that was sufficiently casual. But the first person he met remarked he was so well-dressed that he must be heading for a job interview.
“That evening, I went to Wal-Mart and bought jeans and a T-shirt,” he said with a laugh.
Like Wijnbergen himself, Norbord isn’t a group with a lot of big egos that are vying for attention. It hardly ever gets mentioned in the media, despite being a $2.3 billion company. And yet it has quietly become one of Canada’s global champions, dominating its chosen business like almost no one else in the country.
For Norbord, that business is oriented strand board (OSB), a highly unsexy wood product that has become a cornerstone of North American housing. Two months ago, Norbord completed the $828-million acquisition of Ainsworth Lumber Co. Ltd., making itself the undisputed king of the OSB business with a roughly 27 per cent share of a market worth $7 billion to $8 billion at current prices. And with OSB usage at much lower levels in Europe and Asia compared to North America, the company sees a lot of international growth on the horizon.
Wijnbergen, who was born in Holland but moved to Canada as an exchange student and stayed, has spent his entire career at Norbord. He joined in 1987, when Norbord broke off from Noranda Inc. and became a separate public company. He has worked nearly every possible role at the firm since then, moving between jobs in sales, logistics, strategic planning and operations.
Norbord started out as an integrated forest products company with exposure to pulp, paper, panels and lumber. But in the 1990s, the company broke away from its competitors and decided to focus on OSB. It started building and buying OSB mills in Canada and southern United States.
We determined it was the best financial opportunity in the business
“We determined it was the best financial opportunity in the business. It’s low-cost but also has growing demand, not just in North America but worldwide,” Wijnbergen said.
That was revolutionary thinking at the time. OSB, which is made up of ultra-thin wafers of wood that are stuck together with adhesives, was sold as a dirt-cheap alternative to plywood when it hit the North American market in the 1980s. Up close, OSB is markedly different from plywood, which has a very smooth veneer. OSB looks like what it is: scores of wood flakes piled on top of each other.
As Wijnbergen sees it, people just didn’t realize back then that OSB is a highly engineered product that could be customized for different end uses. A big challenge for the OSB producers at the time was to overcome the stigma that it was junk.
That isn’t a problem anymore. OSB has gained massive market share in the last couple of decades, and now makes up 64 per cent of the North American structural wood panels market, according to Norbord. Plywood is more expensive than OSB, and in Norbord’s view, it is less strong and less customizable for builders (though plywood panels do dry faster and are better for painting).
OSB’s primary use is in new home construction, which consumes more than half of global production. But it is gaining traction in other areas as well. Wijnbergen noted that until a decade ago, hardly any OSB was used in upholstered furniture. Now it’s ubiquitous.
“We can work with the furniture guys to make an OSB quality that specifically meets their end-use requirements,” he said. “And from a manufacturing perspective for them, OSB is much more efficient than any other products.”
Of course, it hasn’t been all fun and games for Norbord and its OSB peers in recent years. The collapse in U.S. housing starts during the Great Recession took a massive toll on the industry, as benchmark OSB prices plunged from almost US$400 per thousand square feet to well below half that level.
The OSB producers quickly slashed production, including Norbord, which idled two plants right away and a third a few years later. When U.S. housing turned a corner in 2012 and 2013, OSB prices jumped and several mills re-opened at once. But the housing recovery turned out to be slower than expected, and that created a glut in the OSB market and drove prices back down. Today, they are around US$190 per thousand square feet, slightly below the 15-year average.
In some ways, the housing crisis turned out to be a blessing in disguise for Norbord. In addition to forcing the company to become much leaner and more efficient, it helped create the Ainsworth acquisition opportunity.
Vancouver-based Ainsworth ran into financial problems amid the U.S. housing crash, and in July 2008, it got bailed out through a US$1.2 billion recapitalization agreement with creditors. That deal made Brookfield Asset Management Inc. the controlling shareholder of Ainsworth. Brookfield was already Norbord’s majority shareholder, so a merger between the two started coming into focus.
It didn’t happen right away. Instead, Brookfield agreed to sell Ainsworth to one of Norbord’s chief competitors, Louisiana-Pacific Corp (LP). Norbord was disappointed to miss out on the deal, but it got a second chance when U.S. antitrust regulators put up barriers to the LP acquisition. LP got frustrated and walked away from the transaction last year.
That Asian market is much earlier in its growth process (for OSB) than North America
With support from Brookfield, Norbord swooped in with a friendly, all-stock offer for Ainsworth in December. The deal got U.S. antitrust approval in March, and finally closed in April, creating an OSB juggernaut with roughly 7.7 billion square feet of production capacity. Norbord had US$1.2 billion of revenue last year, while Ainsworth had $444 million.
Competition regulators were less concerned about Norbord buying Ainsworth than they were with LP because there was less geographic overlap — Norbord was focused on eastern North America, while Ainsworth was in the West. By putting them together, Norbord spread out across the continent, and crucially, got its first link to the Asian market.
OSB is barely on the radar in Asia — in Japan, for example, Wijnbergen said it only makes up about eight per cent of the structured panels market. Ainsworth shipped about 300 million square feet of OSB to Asia last year, and Wijnbergen thinks Norbord could double that in the next two or three years.
“That Asian market is much earlier in its growth process (for OSB) than North America,” he said. “There’s lots of opportunity there to significantly increase the volumes.”
The coming months will be busy for Wijnbergen and his team. They have vowed to deliver US$45 million of annual synergies from the Ainsworth deal during the next couple of years. They’ll also have to figure out how best to serve a broader customer base, and how to implement operational improvements across the company. Wijnbergen thinks the Norbord and Ainsworth mills have a lot to learn from each other — for example, Ainsworth has some innovations in product development that Norbord hopes to spread across its mill network.
Given his long history at Norbord and familiarity with every aspect of the company, Wijnbergen is a logical person to lead this effort. If he executes his plan effectively and the global OSB market continues to expand the way Norbord hopes, the company may not remain this far below the radar indefinitely.
By: Financial Post