A $981.7-million bid by B.C. billionaire Jim Pattison to take full control of Canfor Corp. has gained the support of the forestry firm’s special committee of independent directors despite one prominent shareholder’s criticisms that the offer is too low.
Canfor shares crept closer on Tuesday to the cash offer of $16 a share, rising 32 cents to finish at $15.92 on the Toronto Stock Exchange.
Mr. Pattison, who owns 51 per cent of Canfor through Great Pacific Capital Corp., announced his bid in August to acquire the rest of Canfor’s stock and take the company private.
Late Monday night, Canfor’s special committee recommended that shareholders approve the bid by Mr. Pattison to acquire the remaining 49 per cent of Canada’s second-largest lumber producer.
Canfor surpassed $34 a share in June, 2018, when lumber prices reached near-record highs. The stock traded at $8.80 before Great Pacific disclosed the bid to double down on Canfor.
Letko Brosseau and Associates Inc., a Montreal-based investment management company that controls 4.8 per cent of Canfor, said last month that it plans to vote against the offer because it undervalues Canfor. Letko Brosseau said the "premium to the prior closing price is based on a very depressed share price” of $8.80.
Vancouver-based Canfor said an independent valuation by Greenhill & Co. Canada Ltd. has determined a fair market value ranging from $14.24 to $19.38 a share.
Conrad Pinette, chairman of Canfor’s special committee, said independent financial and legal advisers have scrutinized Great Pacific’s offer. “We are pleased to have reached an agreement with Great Pacific,” Mr. Pinette said in a statement. “The special committee believes that the transaction represents fair value for shareholders and is the correct path forward for Canfor, Canfor employees, communities and shareholders.”
Mr. Pattison’s bid for full control of Canfor comes during an industry slump, with low lumber and pulp prices.
Benchmark lumber prices have tumbled nearly 40 per cent over the past 16 months as inventories increase amid lower-than-expected U.S. housing starts, exacerbated by a severe winter and then prolonged wet weather that delayed construction in some markets.
The transaction will require approval by a simple majority of the votes cast by eligible minority shareholders at a special Canfor meeting in December. If the voting goes in favour of Great Pacific’s bid, the deal will close by the end of 2019, subject to a court-approved plan of arrangement.
Industry analysts are expecting a close vote. “We believe that some minority shareholders should be reluctant to support the deal, as currently proposed,” Scotia Capital analyst Benoit Laprade said in a research note on Tuesday.
Mr. Pinette, John Baird, McNeill Singleton and Barbara Hislop are the Canfor independent directors who formed the special committee.
CIBC World Markets Inc. analyst Hamir Patel noted that Ms. Hislop “abstained from voting during the board resolutions concerning the transaction.”
While Ms. Hislop has not committed to vote her shares to back Great Pacific, all other directors have entered into pacts to support the go-private bid.
Paul Quinn, an analyst at RBC Dominion Securities Inc., said the combination of Letko Brosseau’s concerns and one independent director’s abstention will give momentum to minority shareholders seeking a sweetened cash bid, but he still views shareholders’ rejection of Great Pacific’s offer as unlikely.
After hearing from the special committee, Canfor’s board of directors recommended that shareholders vote in favour of the transaction. Jim Pattison Group president Glen Clark and Ryan Barrington-Foote, the conglomerate’s managing director of accounting, are Canfor directors but they abstained from voting since they are Pattison Group executives.
Canfor has sawmills in Canada and the United States, and also owns 54.8 per cent of Canfor Pulp Products Inc. and 70 per cent of Swedish lumber producer Vida Group.
Mr. Pattison served on Canfor Corp.’s board from 2003 until 2017, when he stepped down as a director. He also owns more than 10 per cent of Canada’s largest lumber producer, West Fraser Timber Co. Ltd.
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