Norbord Inc.'s proposed acquisition of Ainsworth Lumber Co. Ltd. will create a global wood products giant with a market capitalization of about $2-billion.
The all-stock deal, valued at $762.6-million, comes as the forestry business continues to adjust and downsize operations to manage the fallout from the dramatic rise of the Canadian dollar against its U.S. counterpart, U.S. duties on Canadian softwood lumber exports and the severe housing slump in the U.S., among other factors.
Toronto-based Norbord and Vancouver, B.C.-based Ainsworth said on Monday they have signed a definitive agreement to combine their operations, which are concentrated in the oriented strand board (OSB) sector, in North America, Europe and Asia.
The deal – valued at $3.16 per share and representing a 6 per cent premium to Ainsworth's closing stock price on Friday – would create a powerhouse forestry company combining Norbord's 7 North American mills, mostly in the U.S. southeast with one mill in Quebec and 4 mills in Europe and Ainsworth's three mills in Western Canada and one mill in Ontario.
Total OSB capacity will be about 7.7 billion square feet, making the new company – operating under the Norbord name – the largest in the OSB sector.
OSB is an engineered wood-based panel made up of compressed layers of wood strands.
"This transaction unites two complementary businesses behind a common vision of enhanced service to our customers and growth in North America, Europe and Asia," Norbord president and chief executive officer Peter Wijnbergen said.
Norbord will acquire all of the Ainsworth's shares in an all-share transaction in which Ainsworth shareholders will receive 0.1321 of a Norbord share for each Ainsworth share.
On a pro forma basis, the combined company posted sales of $1.63-billion (U.S.) in the 12 months ended Sept. 27, 2014.
Both companies are majority owned by Toronto-based Brookfield Asset Management Inc.
Upon closing of the deal, Brookfield will control about 53 per cent of the common shares of the new entity, the companies said Monday.
The two companies said they expect cost savings of about $45-million per year, achievable over an 18-to-24-month period.
Norbord's Mr. Wijnbergen will become CEO of the new business, while Ainsworth CEO Jim Lake will stay on as an advisor for 6 months.
The transaction value represents a premium of 15 per cent to Ainsworth's 20-day volume weighted average stock market price.
The deal, unanimously approved by the both boards – excluding Brookfield affiliated directors – requires the approval of two-thirds of the votes cast by Ainsworth shareholders and a majority of the votes cast by Norbord shareholders as well as a majority of the votes cast by Ainsworth and Norbord shareholders other than Brookfield and its affiliated entities at special meetings scheduled for January 2015.
Norbord's dividend policy will continue and it is expected that the new board will set the dividend at 25 cents (Canadian) per share in the first quarter of 2015.
Upon completion of the transaction, Norbord shareholders will own about 63 per cent of the combined company, while Ainsworth shareholders will own about 37 per cent of the new entity.