The log yard at the West Fraser Timber sawmill in Quesnel, B.C. Dec. 16, 2010.JOHN LEHMANN/The Globe and Mail
West Fraser Timber Co. Ltd. is buying Norbord Inc. in a $4-billion deal that will make the lumber and plywood producer into a major global manufacturer of panels used for construction sheathing and flooring.
Under the friendly deal, shareholders of Norbord will receive 0.675 of a West Fraser share for each Norbord share. That equates to $49.35 a share, the companies said. The offer represents a premium of 13.6 per cent over Norbord’s closing price on Wednesday.
Norbord shares jumped 11 per cent to $48.30 on the Toronto Stock Exchange on Thursday. West Fraser fell 2 per cent to $71.61.
Toronto-based Norbord is the world’s largest producer of oriented strand board (OSB), an engineered panel product that West Fraser chief executive Ray Ferris said fits well with his company’s lumber, plywood and medium density fibreboard products.
Talks began in the spring, although West Fraser has long been interested in acquisitions that would boost its presence in OSB, and has coveted Norbord as the industry leader, Mr. Ferris said.
“To me, the ‘Why now?’ is easy. We were always motivated, and the timing just happened to be today,” he said during a conference call. “I’m glad that, quite frankly, we weren’t successful maybe in the past so that this opportunity has arrived in this time in the way it has. You could say it is perfect timing for West Fraser.”
The addition of the Norbord operations will improve West Fraser’s ability to serve its key markets and provide new opportunities to expand the company, Mr. Ferris said.
“If you look at the fundamentals for wood and lumber consumption and the housing and formation needs in North America, and quite frankly, globally, that’s the business we’re in,” he told The Globe and Mail. “We want to be able to supply those products into a global marketplace.”
Norbord has production facilities in Canada, the United States, Britain and Belgium. Vancouver-based West Fraser said it expects annual savings of $80-million by merging the companies. Some of that will come from the ability to take advantage of the proximity of operations in regions such as the southern U.S. and Western Canada. The company does not plan on major layoffs to achieve its targets for cost savings, Mr. Ferris said.
For shareholders of Norbord, who will own 44 per cent of the combined business, the increased scale and diversity of products will offer better protection against cyclical downturns, said Peter Wijnbergen, Norbord’s CEO.
To proceed, the transaction requires the approval of investors that hold two-thirds of Norbord shares. Brookfield Asset Management, which owns 43 per cent of its shares, has agreed to support the deal. A simple majority of votes by cast by West Fraser shareholders is also required.
Assuming the transaction is approved, it would be completed in the first quarter of 2021.
B.C. billionaire Jim Pattison owns large stakes in West Fraser, as well as forestry rival Canfor Corp.
“We’ll absolutely support West Fraser and Brookfield. We will certainly support the transaction,” Mr. Pattison said in an interview. “West Fraser is a high-quality company with high-quality management and as far as Brookfield is concerned, they don’t make them any better.”
In March, Mr. Pattison raised his stake in West Fraser to 13.8 per cent from 11.9 per cent. He already owns nearly 51 per cent of Vancouver-based Canfor. West Fraser is Canada’s largest lumber producer, followed by Canfor.
There had been speculation of a West Fraser-Canfor merger, but B.C.’s NDP government would frown on consolidation in a sector already reeling from lumber mill closings across the province. In late 2019, minority shareholders in Canfor rejected Mr. Pattison’s $983.8-million cash bid to acquire stock that he doesn’t already own in the company.
A major shareholder in West Fraser is Seattle-based Ketcham Investments Inc., controlled by the family of Hank Ketcham, West Fraser’s chairman and former CEO. West Fraser said certain members of the Ketcham family have agreed to vote their 19-per-cent stake in favour of the transaction.
CIBC World Markets Inc. analyst Hamir Patel said the deal makes sense. “It provides West Fraser an opportunity to expand into another attractive category in wood products (OSB),” Mr. Patel said in a research note. “The combined business should see reduced earnings volatility given differing peak/trough cycles for OSB versus lumber and the combined entity should benefit from increased trading liquidity.”
West Fraser said it secured US$1.3-billion in credit facilities for the transaction, which are estimated to provide US$1.1-billion in undrawn capacity after the deal closes.
The deal includes a break fee of $110-million should it fail to close.
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