Canfor board supports going private amid worries about bid being too low

B.C. timber giant Canfor Corporation has agreed to a $16-per-share buyout by billionaire Jim Pattison’s Great Pacific Capital Corp., setting up a possible showdown with shareholders, who think the offer is too low.

In a statement late Monday, Canfor’s board of directors said the cash offer represents a good value given the “headwinds” in the forestry sector including the low prices for logs and pulp, and called it a significant premium.

The stock was trading 1.8-per-cent higher to $15.88 in Toronto on Tuesday. The last trading day before the offer was made public, on Aug. 9, Canfor shares traded at $8.80.

Great Pacific controls 51 per cent of the shares, but in order to proceed the transaction would require two-thirds of the overall shareholders’ support and a simple majority from minority shareholders.

Last month, Montreal’s Letko, Brosseau & Associates, which said it manages 4.8 per cent of the outstanding shares, announced it would vote against the offer, calling it based on a “very depressed share price.”

Mark Wilde, a BMO analyst, agreed. “We think Great Pacific’s offer to take Canfor private ... looks like impeccable timing,” he wrote in August shortly after the deal was announced. “However, the offer is far below our estimate of Canfor’s ‘intrinsic’ value of $23 per share.”

Wilde wrote that lumber and pulp prices, Canfor’s two main businesses, are volatile, which results in huge cash flow swings. Lumber hit a record in the summer of 2018, and pulp peaked at the end of 2018, but prices for both subsequently collapsed, and Canfor’s stock price declined, too.

Wilde wrote that Pattison’s bid is only a premium when Canfor is valued at a low-point in the cycle. “We think this bid falls well short of a fair/optimal outcome for (Canfor’s) minority shareholders,” he wrote.

Canfor declined to comment.