Brookfield Asset Management Inc . has sold more than $1.25-billion in shares of West Fraser Timber Co. Ltd . over the past 10 weeks, taking advantage of a fiery-hot market for wood and all manner of construction products.
The sales – totalling 14.8 million shares – have cut Brookfield’s ownership of West Fraser from nearly 20 per cent to 7.3 per cent, according to Brookfield’s filings with securities regulators. In the past two weeks, Brookfield has sold nearly 1.24 million shares for $128-million; in a single day, April 1, it sold more than six million shares for $517-million.
Brookfield is a new shareholder of West Fraser: It received its shares on Feb. 1, when West Fraser bought Norbord Inc. in an all-stock transaction. Brookfield owned 43 per cent of Norbord, and had three executives on the Norbord board, including former Brookfield chief executive Jack Cockwell.
But in many ways, the sales represent an unwinding of one of Brookfield’s longest-held positions.
Brookfield can trace its stake back decades, when it was called Brascan Financial Corp. and it held a major position in a resources company called Noranda Inc. In 1998, Noranda spun off its building-products division, calling it Nexfor Inc. In 2004, Nexfor did another spinoff and renamed itself Norbord.
In a March, 2002, interview with The Globe and Mail, newly appointed Brascan CEO Bruce Flatt said the company would focus on three “stable” core industries: real estate, hydroelectricity and financial services. The plan seemed to leave little room for its Noranda and Nexfor stakes, which, at $1.88-billion, represented about 6 per cent of the company and were combining to give Brascan $100-million a year in dividend income. Mr. Flatt – who continues to serve today as Brookfield CEO – told The Globe in 2002 he had “absolutely no intention” of selling the resource companies during what was then a cyclical downturn in commodity prices, but he did not rule out selling the two companies over the long term. (In 2005, Noranda merged with Falconbridge Ltd. and took the latter’s name; it was acquired by Xstrata Ltd. in 2006, which was then acquired by Glencore PLC in 2013.)
Indeed, Brascan – soon renamed Brookfield – rode through several cycles with Nexfor/Norbord. It was a shareholder of Norbord spinoff Fraser Papers Inc. when it sought bankruptcy protection in 2009 during the financial crisis. Norbord itself had to do a 1-for-10 reverse split in October, 2009. (Companies do a reverse split, where stockholders receive fewer shares with a higher per-share price, to avoid getting classified as a penny stock.)
Since that time, however, timber stocks have done well. West Fraser Timber is up 675 per cent since the reverse split, better than 80 per cent of the companies on the S&P/TSX Composite that have been trading over that period.
When Norbord shareholders agreed to the sale to West Fraser last November, West Fraser shares traded at about $73. They closed Thursday at $95.53, and hit a high of $109.25 on April 19.
Brookfield says in its securities filings that it started selling on Feb. 17 with a sale of 163,377 shares at an average price of $90.01. Some of its mid-April sales were at prices above $100. All told, the average sales price was just above $85.
Brookfield also said in one of its filings that it has entered a hedging transaction for an additional 5.16 million West Fraser shares. While it still technically holds those shares, the transaction has effectively eliminated its economic ownership of them by transferring the risks, and potential upside, to others. With that additional deal, it has cut its economic stake to just over 3.5 million shares, worth $336-million.
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