Tem­bec suitor Ray­onier reaf­firms ac­qui­si­tion

Stockwatch Daily - - INDUSTRIALS & MATERIALS - Mr. Ryan Houck of Ray­onier re­ports

RAY­ONIER AD­VANCED Ma­te­ri­als Inc. (RYAM) has reaf­firmed its com­mit­ment to ac­quire Tem­bec Inc. on the terms pre­vi­ously agreed with Tem­bec. The com­pany be­lieves that the pre­vi­ously an­nounced ar­range­ment con­sid­er­a­tion of $4.05 in cash or 0.2302 of a share of Ray­onier Ad­vanced Ma­te­ri­als com­mon stock per Tem­bec com­mon share — which is sub­ject to pro­ra­tion so that ap­prox­i­mately 63 per cent of the ag­gre­gate con­sid­er­a­tion is paid in cash and 37 per cent is paid in Ray­onier Ad­vanced Ma­te­ri­als stock — pro­vides com­pelling value to Tem­bec share­hold­ers. The com­pany does not in­tend to in­crease the con­sid­er­a­tion of­fered to Tem­bec share­hold­ers.

On July 14, 2017, the com­pany re­ceived a let­ter from Oak­tree Cap­i­tal Man­age­ment in­di­cat­ing its in­tent to vote against the com­pany’s ac­qui­si­tion of Tem­bec at the spe­cial meet­ing of Tem­bec share­hold­ers. Oak­tree’s let­ter con­tains a num­ber of mis­lead­ing state­ments. The com­pany be­lieves that the pre­vi­ously an­nounced ar­range­ment con­sid­er­a­tion, which was the re­sult of ex­ten­sive ne­go­ti­a­tions with Tem­bec, rep­re­sents a full and fair price and an at­trac­tive val­u­a­tion for the fol­low­ing rea­sons:

• The ar­range­ment con­sid­er­a­tion rep­re­sents a sig­nif­i­cant pre­mium to Tem­bec’s his­tor­i­cal share price.

• The cash com­po­nent of the ar­range­ment con­sid­er­a­tion rep­re­sents ap­prox­i­mately 63 per cent of the cur­rent over­all value of the ar­range­ment con­sid­er­a­tion and pro­vides a sub­stan­tial and im­me­di­ate value re­al­iza­tion for Tem­bec share­hold­ers.

• With ap­prox­i­mately 37 per cent of the con­sid­er­a­tion in the form of Ray­onier Ad­vanced Ma­te­rial stock, Tem­bec share­hold­ers have the op­por­tu­nity to cap­ture en­hanced long-term value prospects through con­tin­u­ing par­tic­i­pa­tion in a larger, more di­verse com­pany.

• En­hanced liq­uid­ity: As part of a sig­nif­i­cantly larger com­pany, Tem­bec share­hold­ers re­ceiv­ing Ray­onier Ad­vanced Ma­te­ri­als com­mon stock will ben­e­fit from sig­nif­i­cantly in­creased mar­ket liq­uid­ity.

• Tem­bec’s board of direc­tors and man­age­ment re­viewed strate­gic al­ter­na­tives for nearly two years. The in­ter­est of Tem­bec’s board of direc­tors and man­age­ment are fully aligned to that of share­hold­ers, and Tem­bec’s board re­ceived two fair­ness opin­ions to the ef­fect that the trans­ac­tion is fair.

• Tem­bec re­tained the abil­ity to en­gage in dis­cus­sions with re­spect to an un­so­licited com­pet­ing of­fer that could rea­son­ably be ex­pected to be more favourable to Tem­bec share­hold­ers than the trans­ac­tion with the com­pany. In the nearly two months since the ar­range­ment agree­ment was an­nounced, no third party has made such an of­fer. Tem­bec’s board of direc­tors unan­i­mously ap­proved the ar­range­ment agree­ment and rec­om­mended that its share­hold­ers vote for the ar­range­ment. In­sti­tu­tional Share­holder Ser­vices (ISS) also rec­om­mended that Tem­bec share­hold­ers vote for the ar­range­ment with Ray­onier Ad­vanced Ma­te­ri­als. TD Se­cu­ri­ties stated, “We be­lieve that RYAM’s bid is fair.”

The com­pany be­lieves that the agreed-upon con­sid­er­a­tion re­flects the sig­nif­i­cant value that can be cre­ated through a com­bi­na­tion be­tween the two com­pa­nies, but also the mean­ing­ful risks as­so­ci­ated with Tem­bec’s busi­ness seg­ments, in­clud­ing:

• Com­mod­ity busi­nesses: With the sig­nif­i­cant ma­jor­ity of Tem­bec’s rev­enue in com­mod­ity mar­kets, the agreed-upon price re­flects the volatile na­ture of these busi­nesses as they are cur­rently op­er­at­ing above his­tor­i­cal av­er­ages.

• Soft­wood lum­ber tar­iffs: Tem­bec has a sig­nif­i­cant ex­po­sure in the de­vel­op­ing trade ten­sion be­tween Canada and the United States with his­tor­i­cal lum­ber ex­port vol­umes in ex­cess of 50 per cent.

• Cur­rency: Nearly 50 per cent of Tem­bec’s Cana­dian sales are de­nom­i­nated in U.S. dol­lars, with the ma­jor­ity of its pro­duc­tion in­puts in Cana­dian dol­lars. A stronger Cana­dian dol­lar can sig­nif­i­cantly af­fect Tem­bec ’s cost po sition com­pared with for­eign com­peti­tors.

• Ex­pense and risk to syn­er­gies: While the com­pany ex­pects to achieve up­ward of $50-mil­lion of syn­er­gies over the three years fol­low­ing the com­ple­tion of the ar­range­ment, it will also re­quire con­sid­er­able time, money and re­sources, along with in­creased ex­e­cu­tion risk, to cap­ture these syn­er­gies.

Ray­onier Ad­vanced Ma­te­ri­als be­lieves that its ac­qui­si­tion of Tem­bec is in the best in­ter­ests of both com­pa­nies and their share­hold­ers and reaf­firms its com­mit­ment to ac­quire Tem­bec on the pre­vi­ously an­nounced terms.

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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