One of Western Canada’s largest forest-products businesses, Paper Excellence, moved into the U.S. market on Tuesday by launching a US$2.8-billion takeover of Domtar Corp., a company twice its size.
Against a backdrop of rising prices for pulp, paper and lumber, Paper Excellence is offering US$55.50 a share in cash for Domtar, a 37-per-cent premium to the share price prior to media reports of talks between the two companies last week. The total value of the acquisition, including debt, is US$3-billion.
Privately owned Paper Excellence, based in Richmond, B.C., is controlled by Jackson Widjaja, a third-generation member of a billionaire Indonesian family that also owns one of Asia’s largest pulp and paper companies.
Paper Excellence has 2,800 employees at seven facilities, mostly in British Columbia, and saw sales last year of $2.4-billion. Montreal-based Domtar employs 10,000 workers at 13 mills, mainly in the eastern United States, and 2020 sales were US$3.7-billion.
Mr. Widjaja launched Paper Excellence in 2007 and expanded the company through a series of takeovers, including the acquisition of Catalyst Paper Corp. in 2019, and mills once owned by MacMillan Bloedel Ltd. In a press release, Paper Excellence chief financial officer Joe Ragan said: “We are enthusiastic about entering the American market as we continually improve Paper Excellence’s ability to serve its expanding blue-chip customer base.”
The deal is unfolding at a time when forest-products companies are awash in cash because of soaring commodity prices – pulp prices are up more than 40 per cent in the past 12 months – and the sector is consolidating around its largest players. In February, Vancouver-based West Fraser Timber Co. Ltd. completed a $4-billion takeover of Norbord Inc.
Regional players such as lumber company Interfor Corp. and pulp producer Mercer International Inc. are takeover targets, analyst Paul Quinn at RBC Capital Markets said in a recent report. Likely buyers include Canfor Corp., which has a $4.3-billion market capitalization.
Paper Excellence said it plans to keep Domtar’s management team in place and run the business as a stand-alone entity. The transaction is expected to close in the second half of the year, and requires the approval of regulators and Domtar shareholders.
Over the past two years, Domtar sold off a number of divisions, including the US$920-million sale of its personal-care business last year, to focus on pulp and paper. The company paid down debt and maintained market leadership in lower-quality, uncoated paper while expanding production of higher-profit-margin products such as fluff pulp, which is used to make disposable diapers and feminine-hygiene products.
Domtar, founded in 1848, is also taking advantage of growing demand for packaging by converting a paper mill in Tennessee to a facility that makes containerboard, used for the boxes dropped off in home deliveries. In a press release on Tuesday, Domtar chief executive John Williams said: “This transaction validates our long-term strategic plan for our leading paper and pulp businesses, and for our continued expansion into packaging.”
Domtar’s stock price rose 17 per cent to close at US$55.38 on the New York Stock Exchange – its shares are also listed on the Toronto Stock Exchange. In a report, analyst Benoit Laprade at Scotia Capital said: “We do not expect another offer.”
Paper Excellence’s financial adviser is Barclays and its legal advisers are Latham & Watkins LLP, McMillan LLP, Miller Titerle LLP and Mehigan LLP. Domtar’s investment bank is Morgan Stanley & Co. LLC, while its law firms are Debevoise & Plimpton LLP and Osler, Hoskin & Harcourt LLP.
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