Stella-Jones Inc. has zeroed in on a U.S. acquisition target that will provide a major boost to its presence in the North American wood treating business.
The Montreal-based pressure treated wood products has signed a non-binding letter of agreement to buy the shares of rival McFarland Cascade Holdings Inc. for a deal valued at about $230-million (U.S.).
Once concluded, the acquisition will be Stella-Jones' biggest ever. The company - whose product line includes railway ties and utility poles - has been on the hunt for a suitable acquisition to take it to the next level.
"The potential acquisition of McFarland would further enhance the range of Stella-Jones' offerings in the North American wood treating industry," Stella-Jones' president and chief executive officer Brian McManus said in a news release Friday.
Founded in 1916, McFarland makes utility poles as well as crossarms, piling and crane mats, and treated lumber for outdoor home projects.
Its wood-treating facilities are located in Tacoma, Washington; Eugene, Ore.; Electric Mills, Miss.; and Galloway, B.C.
McFarland's sales for the fiscal year ended Dec. 31, 2011 were about $255-million (U.S.).
Sales for the current fiscal year are expected to be in the $280-million range.
"We were aware that [Stella-Jones] has had a major acquisition in its sights for a number of years. We see significant synergies and cross-selling potential that could drive earnings beyond our initial forecasts," Desjardins Securities analyst Pierre Lacroix said in a research note Friday.
Stella-Jones said it plans to finance the transaction through a combination of term financing and equity.
The company has already received U.S. anti-trust clearance.
If finalized, the deal is expected to close in November.
Stella-Jones, which was created in 1992 with the purchase of Domtar Inc.'s wood-preserving division, operates 19 wood-treatment facilities in 10 U.S. states and 5 provinces. Among other assets, it owns a coal tar distillery.
Among its customers are North America's largest railway companies, telecom providers and electric transmission utilities.