West Fraser Timber poison pill stirs speculation about Pattison’s role

April 14, 2020

By: The Working Forest Staff

 By Andrew Bell

BNNBLOOMBERG — B.C. billionaire Jim Pattison faces political opposition if he tries to merge Canfor Corp. and West Fraser Timber Co. Ltd., according to analysts who are racing to assess what’s happening behind the scenes after West Fraser shored up its defences against any unwanted takeover attempts.

Adding extra intrigue: recent filings show Pattison, who owns about 51 percent of Canfor, bought 1.3 million West Fraser shares last month, bringing his stake to almost 14 percent.

Late Thursday, West Fraser said it adopted a shareholder rights plan (also known as a poison pill) to give management and the board more power to fend off undesirable advances, including so-called “creeping bids” where an investor amasses a stake of more than 20 percent in the company.

When reached by BNN Bloomberg Monday, Pattison said “it doesn’t affect us… We have been shareholders in West Fraser for 19 years.”

And while the West Fraser press release made no mention of any specific investor, analysts were quick to point out the hazards in any attempt to merge the two companies that have enormous sway over the B.C. forest sector, which has been reeling as high timber costs force sawmill shutdowns.

“We see a potential combination of [Canfor and West Fraser] as being unlikely while an NDP government is in power in B.C.,” said CIBC analyst Hamir Patel in a report.

Patel argued that the province would be slow to approve the transfer of rights to cut vast swathes of B.C. forest, predicting that “approval of the changes in tenure ownership would be challenging to obtain.”

But BMO analyst Mark Wilde indicated the lumber industry’s woes could actually ease the path to a deal.

“Politically, it has appeared unlikely that British Columbia would permit the two largest holders of provincial cutting rights to combine [about one-third of BC’s annual allowable cut],” he wrote.

“That is still our view. However, with the B.C. forest products sector in crisis as producers cope with shrinking timber supplies and higher costs, the political landscape may be shifting.”

CIBC’s Patel noted the Ketcham family is believed to own around 20 to 25 percent of West Fraser so “we do not believe a hostile bid is likely.”

According to the company’s circular for its upcoming annual meeting, Ketcham Investments, a company controlled by the family of West Fraser chairman Hank Ketcham, held a total of 7.4 million shares for 10.7 per cent of the voting rights. Hank Ketcham himself held just under 400,000 shares. Another Ketcham-family controlled entity held 333,066 shares and Hank Ketcham’s cousin, John Ketcham, also a director, owned or controlled 991,100 common shares.

BNN Bloomberg has asked West Fraser for details of the Ketcham’s clan’s full stake.

Late last year, Pattison abandoned a bid to acquire full control of Canfor after too few investors agreed to his offer of $16 a share. Some of the shareholders who spurned the deal may be regretting that now, with Canfor trading at less than $9 per share.

As for a possible bid for West Fraser, BMO’s Wilde said “you can’t fault Jim Pattison’s timing or his eye for value,” noting that West Fraser’s stock hit a seven-year low on March 23. The shares have risen around 50 percent since then.

In its release Thursday, West Fraser also said lenders agreed to an additional $150-million revolving credit facility. “Our strong balance sheet and additional liquidity further strengthens our ability to weather the impacts of the COVID-19 pandemic,” CEO Ray Ferris said in a statement.

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