Susan Hare
TimberWest Forest Corp. , aiming to top a $1-billion takeover offer by two pension funds, is drumming up alternative bidders for the company as the resurgent Canadian forestry sector attracts a new wave of investors.
British Columbia Investment Management Corp. and the Public Sector Pension Investment Board on Monday launched a $1-billion bid for TimberWest, a major log producer with fast-rising shipments to China and other parts of Asia.
TimberWest said Monday it was making several dozen calls to solicit additional bids. The company's recent growth and land position could help spark a bidding war, as investors gauge the company's long-term prospects.
After a years-long industry depression, the potential for a sustained rebound in the forest products sector has triggered new interest among value investors and players such as pension plans. Shares of industry leaders are near or at all-time highs. China's burgeoning appetite for wood for construction and an expected eventual recovery in the U.S. housing market have sparked higher product prices and a brighter outlook.
TimberWest is also different than other timber firms since it owns its trees and land they grow on, including about 320,000 hectares, mostly on Vancouver Island, making it the island's largest private landowner.
In Canada, more than 90 per cent of wood resides on land owned by the Crown and is leased to companies to harvest. In the U.S., companies typically own timberlands privately.
TimberWest's real estate potential is another draw. TimberWest tried to position itself as a real estate investment before the 2008 recession. Even after the bust, TimberWest continues to market its holdings to developers. Among its offerings is a 25-hectare lakeside parcel for $499,000 near Campbell River in the north-central area of the island.
The pension funds, explaining their strategy, cited their patient, long-term investment style, a luxury that many public companies do not have. The trees are the "real driver" of the deal, but the real estate is also attractive, said Mark Boutet, a spokesman for Public Sector Pension.
"Trees, when you don't cut them down, they continue to grow," Mr. Boutet said. "If you're a long-term investor, basically you can wait for the right pricing environment."
B.C. Investment Management - which already owned about 20 per cent of TimberWest's fully diluted shares through a convertible debenture - has offered $6.48 a unit of the company, billed as a 25-per-cent premium to the recent trading price.
That offer sharply undervalues TimberWest, according to analyst Richard Kelertas of Dundee Capital Markets. He estimated that bids as high as $10 could come in.
"We believe the company's shareholders should wait for a higher bid," Mr. Kelertas said in a report to clients. "The company will generate a lot of interest and will likely push the price well above the current 'for sale sign.'"
TimberWest units closed at $6.46 on the Toronto Stock Exchange Monday, a shade below the existing offer.
As demand in China picked up, lumber supply tightened last year and prices jumped to more than $300 per thousand board feet last December and stayed above that mark through March. But this month the price has sunk back to $250 - the same level as last summer. The price on the Chicago Mercantile Exchange is down about 20 per cent in the past month.
The $1-billion bid for TimberWest - far larger than the typical forestry deal in recent years - includes a 60-day "go-shop" clause that the company extracted from its bidders, which means the company can hustle for better deals in the next two months without the pension plans being able to match the bid.
"The market will ultimately determine what the fair market value of these timberlands is," said Paul McElligott, chief executive officer of TimberWest.
The per-acre price for TimberWest is about $1,275 - which is less than similar deals that were upward of $2,000.
One potential bidder is Brookfield Asset Management, which is the No 2 private owner of trees in B.C. with 635,000 acres. It has a total global portfolio of 2.5 million acres, according to the company's website. B.C. Investment Management already has a minority one-quarter stake in Brookfield's timberlands holdings in B.C. Still, Brookfield may not bid because it is comfortable with the size of its current Canadian holdings, said one person familiar with the company.
David Ebner
Tim Kiladze