Distressed-debt player comes out against Rayonier deal
Tembec holder Oaktree to vote against takeover
Mr. Patrick McCaney of Oaktree Capital Management LP reports
INVESTMENT FUNDS managed by Oaktree Capital Management LP, which own 19.9 per cent of the common stock of Tembec Inc. and have been significant long-term shareholders and bondholders, have sent a letter to the
boards of directors of Tembec and Rayonier Advanced Materials Inc. alerting them of Oaktree’s intention to vote against Rayonier’s proposed acquisition of Tembec at the coming special meeting of shareholders on July 27, 2017.
Oaktree would welcome the opportunity to engage in a constructive dialogue with the Rayonier and Tembec’s boards in order to work toward a win-win for all parties and a transaction it can support.
Investment funds managed by Oaktree Capital Management will vote against Rayonier’s proposed acquisition of Tembec and believe offer price must be increased to reflect fair value for the following reasons:
• Oaktree recognizes the strategic merit of the combi na t i on, y et Tem bec shareholders are not receiving fair consideration for the value created by the combination.
• The transaction is of unique strategic value to Rayonier, giving it a generational opportunity to reposition its business away from the secularly declining acetate market, reduce customer concentration and improve geographic diversification. In the absence of this transaction, Rayonier faces a challenging future.
• Benefits are not sufficiently shared with Tembec shareholders due to an inadequate multiple of 2017 consensus EBITDA (earnings before interest, taxes, depreciation and amortization) of five times presynergies and 3.9 times postsynergies (and as low as 2.9 times when including the present value of Tembec’s substantial deferred tax assets). Compara ble bu si ne sses a nd competitors of Tembec trade in the range of 6.6 to 9.9 times EBITDA.
• Tembec could generate more shareholder value as a stand-alone entity. On its own, it is poised to produce as much as 85 cents per
share of after-tax free cash flow in the 12 months ending September, 2017, representing a 20-per-cent stand-alone free cash flow yield at Rayonier’s offer price — an attractive yield for a company with strong growth prospects in its core specialty cellulose ethers business and that is delevering rapidly.
•In the week after announcement, Rayonier’s share price increased 31 per cent, representing $213-million (U.S.) of value for Rayonier common and preferred equityholders. Rayonier shareholders can expect to lose much of this increase if the transaction fails.
• Tembec’s prior announcement of support for the transaction from a large shareholder, Fairfax Financial Holdings Ltd., which owned approximately 19.9 per cent of Tembec at the time of the transaction announcement, is now creating market confusion, as filings indicate Fairfax has sold all of its Tembec shares and appears to have no remaining economic interest in Tembec, while possibly retaining the ability to vote for the transaction.
We seek Safe Harbor.
Karen Baxter condensed this news release (email@example.com).
Norman Murray Betts, James E Brumm, James N Chapman, James V Continenza, Pierre Gignac, James Lopez, Luc Rossignol, Francis M Scricco, David J Steuart, Lorie Waisberg
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