Rick Doman, at the Domtar office in Montreal.John Morstad/The Globe and Mail
The Doman name, for decades synonymous with the booming West Coast lumber business, is heading east.
Convinced that Eastern Canada is poised to win big on a resurgent post-recession lumber market, Rick Doman, son of larger-than-life B.C. lumber baron Herb Doman, is scooping up Domtar Corp.'s eight sawmills in Ontario and Quebec.
Mr. Doman, 46, plans to relocate his fledgling company, Vancouver-based Eacom Timber Corp., to Montreal once the deal closes in June and begin positioning the mills for an anticipated recovery of the U.S. housing market and for exports to Northern Europe, Britain and the Middle East.
In the deal announced Monday, Eacom also gets Domtar - which will now focus on its core product of office paper - as a major investor and a buyer of byproducts from the sawmills. Eacom is paying Domtar $80-million for the mills, plus the value of the working capital acquired, estimated to be between $30-million and $40-million. The cash-and-stock deal will see Domtar get an 11-per-cent stake in Eacom, which is listed on the TSX Venture Exchange.
"We felt Eastern Canada was the place to be," Mr. Doman, the president and chief executive officer of Eacom, said in an interview yesterday. Among the benefits are proximity to the U.S. and the potential to grab bigger market share overseas, not to mention large populations in Ontario and Quebec that make for a solid customer base, he said.
Mr. Doman also cites a "great job" the Ontario and Quebec governments have done in managing the timber resources so that the wood supply is in good equilibrium.
Of course, he faces a tough challenge and doesn't expect a turnaround any time soon. The lumber market is expected to take years to recover and the money-losing Domtar mills are not expected to be big cash generators in the meantime.
Canadian lumber producers have been devastated by the collapse of U.S. demand for wood. Compounding their problems have been heightened competition from low-cost rivals in emerging economies, the negative impact of a rising Canadian dollar on exports and the ravages inflicted on B.C. forests by the voracious mountain pine beetle.
Domtar had been under pressure from its shareholders to sell the sawmills, company spokesman Pascal Bosse said.
"In two or three years, will this business be worth more? Maybe," he said. One advantage that Eacom has is that the financing is all equity, with no debt, he said. That at least gives it a bit of wiggle room as it waits out the anticipated bounce back, he said.
Mr. Doman firmly believes the lumber business will experience a strong comeback in a few years and that the purchase of Montreal-based Domtar's lumber assets at the bottom of the slump is a good deal given the long-term upside.
On the other hand, he's not convinced this is the time to be launching a lumber venture in British Columbia.
"The problem is that the mountain pine beetle epidemic is going to continue to reduce the supply of timber in the West. We just thought it was best to avoid that."
He also expects Eastern Canada to benefit in the future from the gap created as B.C. producers ship less lumber to the U.S. and step up shipments to China and other Asian destinations.
"In an indirect way, Eastern Canada is a China play, because of the wood that won't come to the U.S. market that we can supply."
Frank Dottori, the former head of forestry giant Tembec Inc., views the proposed transaction as "a great opportunity."
"Mills that can get a guaranteed supply of wood will survive and have a great future," Mr. Dottori said, but added that there may be still be some rationalization of the Domtar mill operations, which means further investment.
The acquisition is a return to the operating side of the lumber business for Mr. Doman, who grew up - starting at age 12, sweeping sawdust - learning all aspects of the trade at Doman Industries Ltd.
He took over as head of financially troubled, debt-crippled Doman in 2001 after his father suffered a second stroke that left him in a coma for weeks (he died in 2007). The insolvent company, which posted annual sales of $1-billion at its peak, was restructured, sold and eventually reborn as Western Forest Products Inc.
Rick Doman was let go by the new owners of Doman Industries in 2004 and became a forestry products consultant to investment firms before deciding two years ago that he missed having a hands-on role in the business.
Bertrand Marotte