The share price of West Fraser Timber Co. Ltd. of WFG-T began on Tuesday as investors speculated about a possible takeover of the lumber and wood-based panel producer. West Fraser’s share price jumped as much as 23 percent on the Toronto Stock Exchange in the morning, shortly after Reuters reported that two European companies were interested in buying the Vancouver-based forestry company. The takeover fever later subsided as West Fraser shares closed at $123.83, up $15.89 on the day, or a 15 percent gain. In a statement issued four hours after the TSX opened, West Fraser said it was “aware of recent market and media speculation” and added it had previously met with Kronospan, an existing shareholder, and CVC Capital Partners, a private equity firm. Wales-based Kronospan is a major manufacturer of wood-based 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 lumber producer, said it “has not received an offer and there are no ongoing discussions regarding the terms of any transaction. The company is focused on implementing its business strategy to create shareholder value.” In late 2020, West Fraser announced a friendly agreement to purchase Norbord Inc. in a $4 billion transaction that added Norbord’s global production of panels used for cladding and construction floors. Norbord is the world’s largest producer of oriented strand board (OSB), an engineered panel product. BC billionaire Jim Pattison owns more than 8.9 million West Fraser common shares, or 10.2%. Mr. Pattison, who backed West Fraser’s purchase of Norbord, also owns 52 percent of Canada’s second-largest lumber producer, Canfor Corp. “Timber is a commodity and it goes up and down, and they’ve had big changes in the timber industry,” Mr. Pattison said in a telephone interview Tuesday from his office in Vancouver. “Overall, we are pleased with our investment in Canfor and with West Fraser.” Two-by-fours made from western spruce, pine and fir sold for an average of US$625 per 1,000 board feet last month, compared to $1,617.50 in May 2021, when record highs were set, according to industry newsletter Madison’s based in Vancouver. Timber Reporter. After completing the purchase of 11.9 million shares last month, West Fraser now has 87.5 million common shares, and there are also 2.3 million Class B shares outstanding. Based on Tuesday’s close on the TSX, the forestry company can now boasts a market capitalization of over $11 billion. The main shareholder of West Fraser is Ketcham Investments Inc. based in Seattle, controlled by the family of Hank Ketcham, chairman 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 will be able to vote separately to approve or reject any material transaction. “Certain circumstances or corporate transactions may require the approval of the holders of our common stock and Class B Units on a separate basis for each class,” according to West Fraser’s management information circular issued in April. Potential buyers such as CVC Capital and Kronospan see West Fraser as three separate entities – the BC timber operations, the US timber facilities and the North American and European Engineered Wood Products, or EWP, business, according to three investment banking and legal sources. The Globe and Mail is not naming these sources because they are not authorized to speak about potential clients. The timber operations generated a total of US$796 million in adjusted earnings before interest, taxes and depreciation (EBITDA) in the first three months of this year, while the North American and European EWP divisions posted adjusted EBITDA of US$808 million. The West Fraser BC business, founded by three Ketcham brothers in 1955 in Quesnel, BC, faces its biggest challenges as a result of aboriginal land claims and potential government regulation, according to three investment industry sources. In contrast, the remaining segments have strong growth prospects. If successful, CVC and Kronospan or another bidder could then focus on expansion in the US and Europe and sell West Coast timber operations to a Canadian player, such as a pension fund, to pay down debt and streamline functions, according to investment. industry sources. Kronospan and CVC are both based in Europe and as foreign companies would need federal government approval to acquire West Fraser. Investment industry sources said if West Fraser’s board made it clear the company was for sale, a number of 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 two pension plans: British Columbia Investment Management Corp. and the Public Sector Pension Investment Board, based in Ottawa. A successful bid for West Fraser will likely require support from two long-time shareholders: Mr Pattison and the heirs of the founding Ketcham family. Three sources who know the Ketcham family say they remain tight-lipped and would vote as a bloc on any takeover bid. Mr. Pattison is known for buying and holding investments. Luxembourg-based CVC Capital is one of the world’s largest private equity fund managers, with more than €125 billion under management client assets under management, and has made a number of acquisitions in the past with domestic partners, including the Canada Pension Plan Investment Board. Cole Smead, president and portfolio manager of Arizona-based Smead Capital Management, said West Fraser has hundreds of millions of dollars in timber duty deposits in the United States that could eventually be mostly recovered, assuming a resolution to the Canada dispute -USA. . “There’s off-book money out there,” said Mr. Smead, who oversees a fund that owns 70,000 West Fraser shares. Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox morning or night. Sign up today.
