Dis­tressed-debt player comes out against Ray­onier deal

Tem­bec holder Oak­tree to vote against takeover

Stockwatch Daily - - FRONT PAGE -

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 (karenb@stock­watch.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

(TMB) Shares: 100,000,000

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