West Fraser Pacific Inland Resources sawmill in Smithers, BC on February 24, 2020. Jimmy Jeong / The Globe and Mail
The price of WFG-T shares of West Fraser Timber Co. Ltd. made a roller coaster ride on Tuesday as investors speculated about a possible takeover of the wood producer and wood panels.
West Fraser’s share price rose as much as 23 percent on the Toronto Stock Exchange in the morning, shortly after Reuters reported that two European-based companies are interested in acquiring the Vancouver-based forestry company.
The acquisitions fever later eased as West Fraser shares closed at $ 123.83, an increase of $ 15.89 a day, or a 15 percent gain. In a statement issued four hours after the opening of the TSX, West Fraser said he was “aware of recent market and media speculation” and added that he had previously met with Kronospan, an existing shareholder, and CVC Capital Partners, a privately held company.
Kronospan, based in Wales, is a leading manufacturer of wood panels in Europe. Kronospan, through Banasino Investments Ltd., recently owned 8.2 million West Fraser common shares, or a 9.4 percent stake.
West Fraser, Canada’s largest timber producer, said it “has not received any proposals and there are no ongoing discussions on the terms of any transaction. The company is focused on executing its business strategy to create value for to shareholders “.
In late 2020, West Fraser announced a friendly deal to buy Norbord Inc. in a $ 4 billion transaction that added Norbord’s global manufacturing of panels used to build coatings and flooring. Norbord is the world’s largest producer of Oriented Panels (OSB), a product of designed panels.
Billionaire Jim Pattison owns more than 8.9 million West Fraser common shares, or a 10.2% stake. Mr. Pattison, which supported the purchase of Norbord by West Fraser, also owns 52 per cent of Canada’s second-largest timber producer, Canfor Corp.
“Wood is a commodity and it goes up and down, and they have had big swings in the wood business,” Mr. Pattison in a phone interview Tuesday from his Vancouver office. “Overall, we are pleased with our investment in Canfor and West Fraser.”
Two out of four western spruce, pine and spruce stocks sold for an average of US $ 625 per 1,000 feet of table last month, compared to US $ 1,617.50 in May 2021, when they were established record highs, according to the Vancouver-based industry newsletter Madison’s. Wood reporter.
After completing a 11.9 million share repurchase last month, West Fraser now owns 87.5 million common shares and there are also 2.3 million Class B shares. According to Tuesday’s close at TSX, the forestry company now has a market capitalization of more than $ 11 billion.
One of West Fraser’s major shareholders is Seattle-based Ketcham Investments Inc., controlled by the family of Hank Ketcham, president and former CEO of West Fraser.
Ketcham Investments recently held 3.9 million West Fraser common shares and 1.7 million Class B shares.
The Ketcham family would have the ability to vote separately to approve or reject any major transaction. “Certain corporate circumstances or transactions may require the approval of the holders of our common shares and Class B shares separately, class by class,” according to the West Fraser Management Information Circular published in April.
Potential buyers like CVC Capital and Kronospan see West Fraser as three different units: BC’s wood operations, U.S. wood facilities and the Engineered Wood Products or EWP business in North America and Europe, according to three sources legal and investment banking. The Globe and Mail does not name these sources because they are not allowed to talk about potential customers.
Wood operations generated a total of $ 796 million in adjusted earnings before interest, depreciation and amortization (EBITDA) during the first three months of this year, while US EWP divisions North and Europe recorded $ 808 million in adjusted EBITDA.
West Fraser’s operations in BC, founded by three Ketcham brothers in 1955 in Quesnel, BC, face major challenges as a result of indigenous land claims and potential government regulation, according to three industry sources. investment. In contrast, the other divisions have good growth prospects.
If successful, CVC and Kronospan or another bidder could later focus on expanding to the U.S. and Europe and selling timber operations on the west coast to a Canadian player, such as a pension fund, to pay off debt and streamline operations, depending on the investment. industry sources.
Kronospan and CVC are headquartered in Europe and, as foreign companies, would need federal approval to acquire West Fraser. Investment sector sources said that if the West Fraser board made it clear that the company is for sale, several Canadian buyers, including pension plans, would likely emerge.
Two of BC’s largest forest products companies – TimberWest Forest Corp. and Island Timberlands LP – are owned by a couple of pension plans: British Columbia Investment Management Corp. and the Ottawa-based Public Sector Pension Investment Board.
A successful bid by West Fraser will likely require the support of two longtime shareholders: Mr Pattison and the heirs of the founding Ketcham family. Three sources those who know the Ketcham family say they remain very close and would vote as a blockade on any takeover bid. Mr. Pattison is known for buying and maintaining investments.
CVC Capital, based in Luxembourg, is one of the largest private equity fund managers in the world, with more than 125 billion euros in assets of clients under management, and has made a number of acquisitions in the past with national partners including the Investment Board of the Canada Pension Plan.
Cole Smead, president and portfolio manager of Arizona-based Smead Capital Management, said West Fraser has hundreds of millions of dollars in timber tax deposits in the United States that could eventually be recovered for the most part, assuming a resolution of the dispute between Canada and the US. .
“There’s money out of book value,” Mr. Smead, which oversees a fund with 70,000 West Fraser shares.
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