North American Homebuilding Binge Fuels $3.1 Billion Takeover
(Bloomberg) -- A Canadian lumber giant agreed to spend about C$4 billion ($3.1 billion) to buy the world’s biggest maker of a plywood substitute, tapping into the high demand for wood products during a pandemic-fueled surge in homebuilding.
West Fraser Timber Co. Ltd. has long sought to expand into oriented strand board, an inexpensive plywood substitute that’s mostly used in residential construction. The Vancouver-based company’s focus on the housing industry -- which drives wood consumption -- made its Thursday offer to buy Norbord Inc., the world’s largest maker of the engineered-wood product, a good fit.
“West Fraser’s been interested in growing OSB as long as I’ve been around. We’ve never had the right opportunity and the right time to do that,” Chief Executive Officer Raymond Ferris said Thursday in a conference call. “It fits very well. We think the growth runway and opportunity is out in front of us and we’re fortunate to have been able to take advantage of it.”
A wave in homebuilding and renovations during the pandemic has fueled surging prices for lumber, plywood and other engineered-wood products, bringing windfalls to North American producers. Lumber futures soared to a record in August and oriented strand board followed weeks later to surpass plywood prices, increasing the appeal for Norbord.
Shareholders of Toronto-based Norbord will receive 0.675 of a West Fraser share for each share they own, which equates to C$49.35 based on West Fraser’s closing price on Wednesday, the timber companies said Thursday in a statement. That represents a 14% premium for Norbord investors, who would end up owning about 44% of the combined company, according to the statement.
Norbord soared 8.2% to C$47.02 as of 12:36 p.m. in Toronto, bringing its gain this year to 35%, while West Fraser fell 4.7% to C$69.66.
The transaction is North America’s fourth-largest deal involving a timber company, and the largest since Weyerhaeuser Co.’s $6 billion sale of its containerboard, packaging and recycling business to International Paper Co. in 2008, according to data compiled by Bloomberg.
The combination “makes a lot of sense,” CIBC analyst Hamir Patel said in a note to clients. “It provides West Fraser an opportunity to expand into another attractive category in wood products (OSB) by acquiring the leading producer with a very similar culture.”
The deal comes as Canadian billionaire Jim Pattison has been seeking opportunities to invest through the pandemic. Pattison is a major West Fraser shareholder and individually owns 13.4% of the company. Norbord is 43% owned by Brookfield Asset Management Inc., which supports the deal. The transaction requires the approval of two-thirds of Norbord shareholders as well as support from the majority of West Fraser holders at meetings in January.
The deal is also subject to West Fraser listing its common shares on the New York Stock Exchange, according to the statement. The transaction is expected to close in the first quarter.
The combination will diversify West Fraser’s products and regions, which will help the company be stronger during down cycles in the lumber industry, Norbord CEO Peter Wijnbergen said on the call. He added there is good opportunity in Europe, where there is strong demand for wood in home construction.
Wijnbergen will become West Fraser’s president of engineered wood and be responsible for manufactured wood products including OSB.
The acquisition, which is expected to yield up to C$80 million in annual cost savings within two years, combines Norbord’s OSB capacity of nearly 9 billion square feet with West Fraser’s 6 billion board feet of lumber, the companies said in the call. CIBC’s Patel said the combined business should see reduced earnings volatility given the differing cycles between timber and OSB, and increased trading liquidity from a U.S. listing.
Toronto-Dominion Bank advised West Fraser on the transaction and Bank of Nova Scotia was the independent adviser to the company’s board.
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