Long road to close the Tembec deal

Rayonier’s US$900M takeover

Almost six months to the day.

That was the time it took for Florida- based Rayonier Advanced Materials Inc. to acquire Montreal- based Tembec Inc., a US$ 900- million transaction that closed Monday.

In t hat deal, Tembec shareholders received $ 4.75 a share payable in cash, shares or some combination, subject to overall caps of two- thirds cash and onethird stock.

For those who received Rayonier stock, the acquisition has already proven a positive: The shares are up more than US$ 3 from the day before the deal was announced ( on May 24 with the shares at US$ 13.25) and Monday (when they closed at US$16.70.)

But getting over the line — in what is probably standard time — was quite the journey as this transaction was different in a couple of ways.

For starters, there was considerable opposition from one major shareholder, Oaktree Capital Management LP, which owned about 19.9 per cent and which indicated it intended to solicit proxies to oppose the transaction. Tembec’s secondlargest shareholder, Restructuring Capital Associates, a longtime shareholder with a 17.1- per- cent stake, also opposed the transaction.

Together the two shareholders had the potential to nix the deal, which was being done by way of a plan of arrangement and which required the support of twothirds of the voting shareholders.

Oaktree’s plan, combined with Restructuring Capital’s opposition, drew a quick response: About a week after their opposition became known, Rayonier and Tembec agreed to a new deal.

Instead of the original $ 4.05 a share the new offer would be $ 4.75 a share. As well, slightly more of the consideration would be paid in cash than previously planned ( Tembec’s financial advisers, Scotia Capital and National Bank Financial, which had no difficulty concluding $4.05 a share was fair, quickly signed off on $4.75.)

That higher price did the trick and the two dissident shareholders gave their blessing. At the July 27 shareholders meeting, 95.04 per cent voted for the transaction.

Since then the closing has been held up because of the need to obtain court approvals in Canada and other regulatory approvals. In early August the Chinese signed off while in mid-August Canada gave the OK. ( Germany gave the green light ahead of the shareholder vote. Approval from the U. S. came just after the vote.)

Secondly, when Rayonier emerged with a new higher offer the market lost the opportunity for a hearing on so- called empty voting — a situation in which a shareholder votes on a transaction but in which it has no economic interest. The situation occurs because of the difference in time between the record date ( the date that gives a shareholder the right to vote provided they own shares on that date) and the meeting date. The shareholder has no economic interest because, after voting, it then sells its shares to another shareholder who is not allowed to vote — even though they have a stake.

Here l awyers for Oaktree got in touch with the regulators with a request to clear up the confusion that arose because of the actions of Fairfax Financial, at one time Tembec’s largest shareholder with a 19.99-per-cent interest. When the acquisition was announced, Tembec said, “Fairfax Financial, a 19.99-per-cent shareholder of Tembec, has advised us that it is supportive of the transaction.”

But Fairfax, which didn’t enter a lock- up agreement, went on a stock- selling binge. When the meeting rolled around, it had sold all its shares and at prices above the original $ 4.05 a share. The final sale occurred on the record date, June 19.

And just like the fairy tale, all the investors ended up happy.