Norbord, West Fraser strike $4B merger deal
In a sign of the sweeping changes in Canada's wood products industry, West Fraser Timber Co Ltd. has struck a $4-billion all-stock deal to purchase rival Norbord Inc.
The proposed acquisition combines Vancouver-based West Fraser, the world's largest softwood lumber producer, and Toronto-based Norbord, the world's largest producer of oriented-strand board (OSB), a plywood substitute, to create a new Canadian forestry giant with operations in North America and Europe.
It comes after West Fraser posted record third-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) of $556 million amid a pandemic-fuelled home renovation boom that has lifted the price of most wood products.
“It can be a volatile business, but what we see is when we have a bigger broader and more diverse portfolio, we have a bigger more robust cash flows it allows us to weather the ups and downs of the industry better,” Raymond Ferris, CEO of West Fraser, said in an interview on Thursday. “I don't think that's a stretch (that you'll see more consolidation). When you look at the lumber industry it's still fairly unconsolidated. I would expect to see continued consolidation.”
On a conference call with analysts on Thursday, Ferris cast the merger as means to diversify his company's business and expand in Europe, where Norbord has existing operations.
“We think this is an important part of building out our portfolio to truly be that diversified supplier,” Ferris said.
Under the deal, Norbord shareholders will receive 0.675 of a West Fraser share for each Norbord share, which equates to $49.35 per Norbord common share or a 13.6-per-cent premium to the closing price of Norbord's shares on Wednesday.
The deal comes as Canadian billionaire Jim Pattison has been seeking opportunities to invest through the pandemic. Pattison is a major West Fraser shareholder, and individually owns 13.4 per cent of the company. Norbord is 43 per cent owned by Brookfield Asset Management Inc., which supports the deal.
The transaction requires the approval of two-thirds of Norbord shareholders as well as support from the majority of West Fraser holders at meetings in January. The deal is also subject to West Fraser listing its common shares on the New York Stock Exchange, according to the statement.
The transaction is expected to close in the first quarter.
Shares in West Fraser dropped as much as five per cent, while shares in Norbord closed up more than 11 per cent in Toronto. The combined entity will hold assets throughout North America, including in British Columbia, Alberta, Ontario and the U.S. South.
West Fraser would also add United Kingdom, where Norbord manufactures plywood, particleboard and furniture. Norbord CEO Peter Wijnbergen described Europe as a growing market.