B.C. billionaire Jim Pattison’s $983.8-million bid to take full control of Canfor Corp. is coming down to the wire, as his right-hand man cautions minority shareholders in the forestry firm to beware of tough times ahead.
“It’s a question of how much risk tolerance you have because there are a lot of stormy clouds out there,” Glen Clark, president of Pattison Group and a Canfor director, said in an interview on Saturday.
He listed several challenges facing Canfor, such as U.S. duties on Canadian softwood lumber, declining exports to China and the risk of a recession that would slow the pace of home building in the United States.
“There are lot of geopolitical risks and challenges in the forestry sector, which is why we think that being a private company allows us to manage through that time,” Mr. Clark said. “We think we have offered a very fair price and we hope people vote for it.”
In August, Mr. Pattison launched his go-private offer to buy 49.1 per cent of Canfor for $16 a share in cash. Mr. Pattison’s Great Pacific Capital Corp. and affiliates already own 50.9 per cent of Canada’s second-largest lumber producer.
Mr. Clark pointed out that the share price of West Fraser Timber Co. Ltd., Canada’s largest lumber producer, fell 2.5 per cent last week.
He said he understands that some minority shareholders would rather stick with Canfor over the long term instead of accepting Mr. Pattison’s offer, in hopes that the forestry industry will rebound from its current slump.
Benchmark prices for two-by-fours made from Western spruce, pine and fir have dropped 37 per cent since peaking in June, 2018.
The deadline for proxy voting on Mr. Pattison’s offer is noon ET on Monday.
When Mr. Pattison launched his bid four months ago to take full control of Canfor, the stock price of the lumber producer surged 73 per cent as investors cheered what appeared to be a winning offer. But industry analysts now say the outcome is unclear, with a close vote expected and the added twist of whether independent Canfor director Barbara Hislop will support or thwart Mr. Pattison’s bid.
Shareholders who attend Canfor’s special meeting in Vancouver on Wednesday will be able to vote, if they haven’t already cast their proxy votes by Monday’s deadline.
The transaction will require approval by a simple majority of the votes cast by eligible minority shareholders.
Another challenge for Canfor is coping with dwindling supplies of timber, worsened by an infestation of mountain pine beetles in the B.C. Interior that began in the late 1990s and peaked in 2005. Wildfires in the province in 2017 and 2018 further depleted supplies of wood fibre.
“The thing about the commodity business is it is by its nature volatile,” said Mr. Clark, who served as British Columbia’s NDP premier from 1996 to 1999. “A private company has the luxury of kind of being more patient.”
For the past eight years, Mr. Clark has been president of Pattison Group, the Vancouver-based conglomerate that employs 46,000 people.
The Opposition BC Liberals have been hammering away at Premier John Horgan, blaming his NDP government for neglecting forestry workers. But Mr. Clark said the issue has been politicized.
“With the mountain pine beetle and the fires, there is a significant decline in the amount of timber we can harvest going forward,” he said. “That’s not the Liberals’ fault or the NDP’s fault. That’s Mother Nature. The adjustment is really painful and these are difficult times, no matter who the government is. The mountain pine beetle didn’t vote Liberal or NDP. It just ate a lot of trees.”
In early December, two of three proxy advisory firms recommended that Canfor shareholders vote in favour of the transaction. Institutional Shareholder Services Inc. and Egan-Jones Proxy Services gave the thumbs-up to the cash bid, while Glass, Lewis & Co. recommended voting against Mr. Pattison’s proposal.
ISS said the offer “represents a significant premium” over Canfor’s stock of $8.80 before his bid, while Egan-Jones describes it a “compelling value proposition for minority shareholders.” But Glass Lewis pointed out that Canfor traded above $31 a share one year before Mr. Pattison’s “opportunistic timing.”
One of the wild cards is whether Ms. Hislop sides with the company co-founded in the late 1930s by her late grandfather, Poldi Bentley, and his brother-in-law, John Prentice. Ms. Hislop worked at Canfor from 1977 to 2004, rising through the ranks, including her role as vice-president of operations.
In October, Mr. Pattison’s bid gained the support of Canfor’s board of directors despite Ms. Hislop’s criticisms that the offer is too low. She unsuccessfully sought to have the bid raised to $16.29 – the midpoint of a preliminary independent valuation by Greenhill & Co. Canada Ltd. While 29 cents a share may seem to be small potatoes, Ms. Hislop owns 2,579,405 Canfor shares, so a higher offer would have meant an extra $748,027 for her.
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Brent Jang