Tembec Inc. has agreed to a takeover offer from Rayonier Advanced Materials in an $807-million (U.S.) friendly deal that further thins out the ranks of Canada's publicly-traded forest products companies.
Nearly a decade after emerging from a crisis in North American lumber markets that resulted in its recapitalization, Montreal-based Tembec is selling to Jacksonville, Fla.-based Rayonier for $4.05 a share in cash or the equivalent in Rayonier shares. The $320-million offer, which also includes the assumption of $487-million in debt, represents a 37-per-cent premium to Tembec's share price at Wednesday's close.
Tembec says the agreement will bolster its balance sheet and give it more resources to invest in growth. Rayonier gains more diversification in product line and geography while cutting its currency risk. The combined company is expected to generate annual earnings before interest, taxes, depreciation and amortization of $400-million on revenue of $2-billion.
"Together these companies are going to accomplish more than they ever could on a standalone basis," said James Lopez, Tembec's chief executive, who will exit once the deal is concluded. "[This is] a unique and strategic fit."
Consolidation has ripped through the forest products and paper space over the past 15 years as companies grappled with weakened earnings in the face of the 2006 housing crisis and newsprint's decline, among other challenges. That has left few publicly-traded names for Canadian investors beyond giants West Fraser Timber Co. and Canfor Corp.
The Rayonier-Tembec deal further reduces the list. It also marks another purchase of a significant Quebec-based company with no anti-takeover protection by a suitor out of province. A study by Montreal's Institute for Governance of Private and Public Organizations last year identified 16 Quebec-based firms with revenue topping $1-billion that had no natural protection against hostile takeover bids, including Tembec. Shares of Resolute Forest Products Inc., which is also on the list, shot up as much as 6.8 per cent in trading Thursday as investors bet it might be the next target.
Rayonier Advanced Materials' main business is supplying high-purity cellulose, a natural polymer used by its customers to make cellphones, flat-panel televisions, tires, paint and pharmaceuticals. It has 1,200 employees and seven facilities, including five for wood-chipping.
Tembec makes forest products, including high-purity cellulose, but also lumber, pulp and paper. It has 3,000 workers spread out over 17 mills and plants in Canada, the United States and France. Rayonier officials said Tembec's recently-announced $136-million (Canadian) capital spending plans for its Quebec sites will be maintained while the combined company's Canadian headquarters will stay in Montreal.
"We're excited to get up and into Canada and grow the business up here," said Paul Boynton, Rayonier's chief executive. "We're committed to running all the facilities in Quebec and Ontario and France. They're all profitable. We actually think with additional investments, they'll be even more profitable."
Like other Canadian forestry companies, Tembec was hit last month with a 19.88-per-cent preliminary duty on softwood shipments to the United States. Mr. Lopez said in a scenario where the company remained a standalone producer and was forced to pay duties for several years while the dispute plays out, it would face the prospect of curbing back investments in its plants. He said with the merged company's financial heft, that's no longer an issue.
Tembec investors will vote on the deal in a special meeting to be held in July. Prem Watsa's Fairfax Financial, which holds a nearly 20-per-cent stake in Tembec, supports the tie-up, the companies said.
Tembec had a market capitalization of barely $300-million before Rayonier's offer. But its corporate history is the stuff of legend. Founded by entrepreneur Frank Dottori in 1973, Tembec parlayed one shuttered pulp mill in Temiscaming, Que., into a multinational empire. The National Film Board made a documentary about Mr. Dottori and the town's struggle to survive.