Brookfield's $3.68-billion sale spotlights new interest in lumber sector

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Brookfield Asset Management Inc. has reached two deals to sell forestry assets for $3.68-billion (U.S.), making moves that underscore a long-awaited recovery in North America's forest products market.

Toronto-based Brookfield said Sunday that it struck a $2.65-billion agreement to sell Longview Timber LLC to Weyerhaeuser Co. of Federal Way, Wash.

Brookfield also said it signed a deal earlier this week that will see KapStone Paper and Packaging Corp. of Northbrook, Ill., acquire paper mill and other assets in the U.S. Pacific Northwest for $1.03-billion.

The two transactions for Brookfield assets in the U.S. Pacific Northwest come amid rising investor interest in forestry companies in North America.

Analysts say that even though lumber prices have softened recently, the stage has been set for an industry renaissance, spurred by a rebound in U.S. housing starts.

On the demand side, Canadian lumber producers in particular have benefited from steady exports to China. Meanwhile, supplies have been restricted in the B.C. Interior, where mountain pine beetles decimated forests in the region.

"We believe the foundations for a significantly improved U.S. housing market and very strong North American lumber market through the 2014-2015 time frame remain in place," CIBC World Markets Inc. analyst Mark Kennedy said in a recent research report.

Cyrus Madon, senior managing partner in Brookfield's private equity group, said in a statement that Brookfield restructured the U.S. businesses after acquiring them in 2007.

"While the timing of the sale transactions is coincidental, for investors in our funds, these transactions represent monetization at excellent returns and puts each of these assets into the hands of strategic buyers who will be able to take them to the next level," Mr. Madon said.

Weyerhaeuser will be picking up nearly 645,000 acres (261,022 hectares) of timberland in the U.S. Pacific Northwest from Brookfield. The properties are held through a global timber fund that includes Brookfield Infrastructure Partners LP and institutional investors.

Brookfield Asset Management is to receive net cash proceeds of $600-million and Brookfield Infrastructure is slated to get $470-million, after factoring in debt repayment and distributions of proceeds to investors.

"We believe our company is uniquely positioned to maximize the value of these timberlands," Weyerhaeuser chief executive officer Dan Fulton said in statement. "The acquired timberlands are highly complementary to our existing acreage in Washington and Oregon."

After the Longview acquisition, Weyerhaeuser's timber holdings in the U.S. Pacific Northwest will increase 33 per cent. The transaction, which includes the assumption of debt, is set to close in July.

Weyerhaeuser, which acquired Vancouver-based MacMillan Bloedel Ltd. in 1999, is one the world's largest forest products companies.

Mr. Fulton, who is retiring this year, will be replaced as CEO by Doyle Simons on Aug. 1, Weyerhaeuser said Sunday. Mr. Simons, who has been a Weyerhaeuser director for the past year, is the former CEO at building products firm Temple-Inland Inc.

Brookfield said that even though it is unloading its Longview assets, it will still pursue potential timberland investments in the future with its partners.

In the Brookfield-KapStone deal, the asset being sold is Longview Fibre Paper and Packaging Inc., which runs a paper mill at Longview, Wash., and seven U.S. Pacific Northwest container plants.

Brookfield expects $250-million in net proceeds from the sale to KapStone.

Analysts such as CIBC's Mr. Kennedy have said that while the forestry sector's recovery has been choppy, the prospects look bright in the years ahead – notably for improved lumber demand.

"The U.S. housing market is building new homes at a significantly lower rate than fundamental long-term demand," he said.