With West Fraser Timber Co. Ltd.'s share price driven down sharply by the COVID-19 pandemic, B.C. billionaire Jim Pattison has boosted his stake in the company, prompting the lumber producer to adopt a shareholder rights plan.
Mr. Pattison, who owned 11.9 per cent of West Fraser’s common shares in early 2020, acquired more stock last month to raise his stake in the forestry company to 13.8 per cent, according to regulatory filings.
West Fraser’s stock price rose 3 per cent to $33.05 on Monday, after the lumber producer announced the implementation of its shareholder rights plan, also known as a poison pill, late last Thursday. But that share price is still only about half West Fraser’s pre-crisis peak in February, and the idea behind such plans is to give companies more time and flexibility to ward off unwelcome advances.
Vancouver-based West Fraser and other lumber producers already faced difficult conditions in the forestry industry even before the pandemic forced companies to scale back their production in March and April amid faltering demand and tumbling wood prices.
West Fraser hit a 52-week high of $70.46 a share last May and finished at $57.28 at the end of 2019.
“The rights plan has been adopted to ensure, to the extent possible, that all shareholders of the company are treated fairly in connection with any takeover bid for the company and to protect against ‘creeping bids,’ which involve the accumulation of more than 20 per cent of the company’s common shares through purchases exempt from applicable takeover bid rules,” West Fraser said in a statement.
Mr. Pattison is chief executive officer of his privately held conglomerate, Jim Pattison Group, and he owns nearly 51 per cent of another Vancouver-based forestry company, Canfor Corp.
Given West Timber’s relatively low share prices recently, industry analysts have speculated that Mr. Pattison could be accumulating shares with the goal of eventually combining the company, Canada’s largest lumber producer, with Canfor, the country’s second-largest lumber company.
In December, minority shareholders in Canfor rejected his bid of $16 a share in cash to acquire Canfor stock that he doesn’t already own. Canfor stock fell 3 per cent to $8.22 on Monday.
Through a financial company, Mr. Pattison acquired 1,275,000 West Fraser shares last month, regulatory filings show. His largest two purchases were on March 16, when he bought 435,800 shares at an average price of $32.79 each, and on March 18, when he acquired 564,200 shares at an average price of $32.36 apiece.
The Ketcham family founded West Fraser in 1955 in Quesnel, B.C. Ketcham Investments Inc., controlled by the family of West Fraser chairman Hank Ketcham, owns 8.5 per cent of the company’s 66.4 million common shares and a large portion of its 2.3 million class B shares.
CIBC World Markets Inc. analyst Hamir Patel said that as long as the British Columbia’s NDP government remains in power, he views the prospect of a Canfor-West Fraser combination as unlikely.
Last year, an array of B.C. producers shut down sawmills or reduced production amid low lumber prices, reduced log supplies and high stumpage rates – fees levied by the province against companies that chop down trees on Crown land. Canadian producers also have been paying U.S. duties on lumber shipments south of the border since April, 2017.
The B.C. government has faced calls from union leaders and trucking contractors to help the forestry industry, which suffered from sawmill closings across the province in 2019 and then a wide range of production curtailments during this year’s COVID-19 crisis.
Mr. Patel estimates that Canfor has recently reduced its Canadian lumber production capacity by 70 per cent.
“Canfor is experiencing a significant decrease in customer demand due to the global impacts of the COVID-19 pandemic, which has resulted in the difficult decision to take additional downtime in Canada,” Canfor CEO Don Kayne said in statement last Thursday.
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