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Logs are stacked at the Interfor sawmill, in Grand Forks, B.C., on May 12, 2018.DARRYL DYCK/The Canadian Press

B.C. lumber company Interfor Corp. IFP-T laid the groundwork for further expansion in Eastern Canada this week by acquiring a 16.2-per-cent stake in GreenFirst Forest Products Inc. GFP-T, a move analysts called a prelude to a takeover.

Interfor bought 28.7 million shares in GreenFirst for $56-million on Monday from pulp and paper company Rayonier A.M. Canada G.P., which acquired the stake as part of its 2017 takeover of Tembec Inc.

Several elements of the transaction point to Interfor eventually taking full control of GreenFirst, which has a $350-million market capitalization, according to analysts.

Based in Burnaby, B.C., Interfor is one of Canada’s largest lumber companies, with a $2.2-billion market capitalization. In a press release on Monday, Interfor said it may be “developing plans or intentions or taking actions which relate to or would result in one or more transactions involving securities of GreenFirst.”

Interfor also granted Rayonier “certain price protection provisions” on its shares, according to the press release. Analysts took this to mean that Montreal-based Rayonier would get more money for its GreenFirst shares if Interfor subsequently makes a takeover bid at a higher price. A spokesperson for Interfor declined further comment on the share purchase.

Interfor records blockbuster year despite fourth-quarter profit plunge

GreenFirst chief executive Rick Doman said in an e-mail: “This investment represents a great endorsement of both our business plan and the quality of the assets we own.”

In February, Interfor expanded in Eastern Canada by acquiring Montreal-based Eacom Timber Corp. for $490-million. Analysts say Eacom’s operations, including seven sawmills in Ontario and Quebec, complement Greenhill’s business, which also features seven sawmills.

“We wonder whether it would be possible to achieve operational synergies through a more meaningful transaction given overlapping asset footprints with Eacom,” analyst Paul Quinn at RBC Capital Markets said in a report.

“A passive minority stake is not the end-game,” analyst Benoit Laprade at the Bank of Nova Scotia said in a report. “A combination with Eacom would make perfect business sense.”

In 2003, the former owners of Eacom and GreenFirst – Domtar Corp. and Tembec – proposed merging the two businesses, but were unable to close the transaction. Mr. Laprade said the two companies “obtained some level of comfort such a combination would get the required approvals from Quebec and Ontario.”

Last June, Eacom founder Mr. Doman became CEO at GreenFirst, after spending a year on the company’s board. Mr. Doman’s family has deep ties to the forestry industry as founders of Western Forest Products Inc.

The North American forest products industry has been consolidating in the past decade around its largest players, with Canadian market leaders such as West Fraser Timber Co. Ltd. and Canfor Corp. expanding their geographic reach through acquisitions. A number of analysts have predicted GreenFirst will be a takeover target.

Lumber prices have soared in the past two years, owing to a surge in home building and pandemic-induced demand for renovations. That’s left many lumber companies flush with cash: Interfor highlighted the fact it had $1-billion of liquidity when it announced its 2021 financial results in February.

Interfor has extensive operations in B.C. and the southeastern U.S., along with the sawmills in Ontario and Quebec it acquired this year. The company’s 4,700 employees produce more than five billion board feet of lumber annually from 31 facilities.

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