The shares of West Fraser Timber Company Ltd. they reduced their profits on Tuesday after the company tamed speculation of the acquisition.
Shares of the Vancouver-based forestry company rose as much as 24 percent in intraday trade after a report said it could be the target of a purchase.
According to Reuters, CVC Capital and wood panel maker Kronospan filed an expression of interest to jointly acquire West Fraser.
However, in a statement issued Tuesday afternoon, West Fraser said that although it has previously met with CVC and Kronospan, it has not received any proposals and there are no ongoing discussions with these parties.
Prior to stopping trading ahead of that statement, West Fraser shares rose nearly 18.5 percent. At 2:02 pm ET, after the reactivation of the negotiation, the recovery had faded to a gain of 9.7 percent.
At the close of trading on Monday, West Fraser had a market capitalization of $ 13.5 billion. The Reuters report did not include any details about the possible terms of a takeover.
A CVC Capital spokesman declined to comment when contacted by BNN Bloomberg. Kronospan could not be reached for comment.
Mark Wilde, who covers West Fraser for BMO Capital Markets, commented on what he called the “interesting” moment of the report.
“Stocks of wood products have been affected by a recent sharp second-quarter correction in wood and panel prices, as well as concerns about the impact of higher mortgage rates on lending activity. ‘housing,’ he wrote in a report to customers.
Wood futures were trading at US $ 642.70 per 1,000 table feet in Chicago on Tuesday. While it is below the recent low of US $ 528 in mid-June, it is about 56 per cent below the recent closing high of US $ 1,464.40 in early March.
West Fraser shares had lost 10.6 percent of their value this year on the Toronto Stock Exchange until Monday’s close.
“The forward-looking offer is reminiscent of the August 2019 bid for Canfor’s minority shares by majority shareholder Jim Pattison,” Wilde added.
That attempt by one of Canada’s richest business leaders finally failed after receiving insufficient shareholder support.
According to data recorded by Bloomberg, Pattison is also West Fraser’s largest shareholder, with a 8.97% stake as of December 31.
Wilde said the acquisition of West Fraser would be one of the largest bids ever in the wood products business and was valued at about $ 125 to $ 130 per share, depending on his model. He added that he does not expect any major regulatory hurdles to prevent an agreement, given the lack of significant geographical overlap between West Fraser and Kronospan.
Wilde has a higher performance recommendation (the equivalent of a purchase) in West Fraser and a target price of US $ 112.00 per share, implying a potential return of 35 per cent compared to Monday’s closing price for to West Fraser shares listed on New York.
Similar to Wilde, Smead Capital Management President Cole Smead questioned the timing of the approach reported by CVC and Kronospan.
“We’re not close to the wood boom prices and this offer looks like it’s trying to take advantage of the fear. Jim Pattison will have to take that into account for his investment,” he said in an email, adding that he believes it would take between $ 145 and $ 150 “to reach an agreement.”
A representative from Smead Capital Management said the company owns approximately 70,000 West Fraser shares.