Paper Excellence to buy Domtar in deal valued at US$3B
Canadian pulp-and-paper producer Paper Excellence agreed to acquire Domtar Corp. in a US$2.8 billion all-cash deal to expand in the U.S. market.
Paper Excellence will pay US$55.50 per Domtar share in the transaction, the Richmond, British Columbia-based company said Tuesday in a statement. That represents a 37 per cent premium to Domtar’s May 3 closing price, when Bloomberg reported on talks between the companies, and values the Fort Mill, South Carolina-based company at US$2.8 billion, based on about 50.2 million shares outstanding.
“We have long admired Domtar’s expansive global footprint and believe that it will be a valuable addition to Paper Excellence,” Joe Ragan, Global Chief Financial Officer of Paper Excellence, said in the statement. “This marks a major step in our global strategy of identifying well-positioned assets and positioning them for growth.”
The deal comes when the paper industry is recovering from last year’s drop in demand, when the pandemic reduced the need for paper products at offices and schools, with many across the globe working from home. The price of pulp, a byproduct of wood and a key ingredient in paper-making, has since soared along with lumber as voracious home-building demand caught sawmills short of supply.
Domtar is North America’s largest manufacturers and marketers of uncoated paper and one of the world’s largest manufacturers of pulp. Paper Excellence, which makes pulp packaging and specialty paper and owns about a 49 per cent stake in a Brazilian mill, said it intends to continue Domtar’s operations as a standalone business, retaining its management team and corporate and production locations.
Paper Excellence “appears to have considerable synergies to realize from pricing benefits associated with operating a larger softwood pulp platform, fiber/transportation savings in Canada and a safer export outlet for Domtar’s forthcoming containerboard conversion tonnage,” CIBC Capital Markets analyst Hamir Patel said in a note.
The transaction has been unanimously approved by Domtar’s board.
“This agreement enables our shareholders to realize certain and immediate cash value at a significant premium for their shares,” Domtar Chief Executive Officer John D. Williams said in the statement. “This transaction validates our long-term strategic plan for our leading paper and pulp businesses, and for our continued expansion into packaging.”
Barclays advised Paper Excellence on the transaction while Morgan Stanley advised Domtar.