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Noah Zivitz

Managing Editor, BNN Bloomberg


Shares in West Fraser Timber Company Ltd. pared their gains Tuesday after the company tamed takeover speculation.

The Vancouver-based forestry company’s stock surged as much as 24 per cent in intraday trading after a report said it could be targeted for a buyout.

According to Reuters, CVC Capital and wood-panel maker Kronospan presented an expression of interest to jointly acquire West Fraser.

However, in a statement issued Tuesday afternoon, West Fraser said that although it previously met with CVC and Kronospan, it has not received a proposal and there are no ongoing discussions with those parties.

Immediately before trading was halted ahead of that statement, West Fraser shares were up almost 18.5 per cent; they ended the day with a gain of 14.9 per cent, to $124.02 on the Toronto Stock Exchange.  

As of the close of trading Monday (prior to purported takeover interest), West Fraser had a market capitalization of $13.5 billion. The Reuters report did not include any details about the possible terms for a takeover.

A spokesperson for CVC Capital declined to comment when reached by BNN Bloomberg. Kronospan could not be reached for comment.

Mark Wilde, who covers West Fraser for BMO Capital Markets, remarked on what he called “interesting” timing of the report.

“Wood products stocks have been hit by a recent sharp second-quarter correction in lumber/panel prices as well as concerns about the impact of higher mortgage rates on housing activity,” he wrote in a report to clients.

Lumber futures were trading at US$642.70 per 1,000 board feet in Chicago Tuesday. While that’s off the recent low of US$528 in mid-June, it’s about 56 per cent below the recent closing high of US$1,464.40 in early March.

West Fraser’s shares had shed 10.6 per cent of their value this year on the TSX through the close of trading Monday.

“The prospective bid is reminiscent of the August 2019 bid for Canfor’s minority shares by majority shareholder, Jim Pattison,” Wilde added.

That attempt by one of Canada’s wealthiest business leaders ultimately failed after it received insufficient shareholder support.

According to filings tracked by Bloomberg, Pattison is also West Fraser’s largest shareholder, with a stake of 8.97 per cent as of Dec. 31.

Wilde said a takeover of West Fraser would be one of the largest-ever deals in the wood products business, and derived a value of about US$125 to US$130 per share, based on his modeling. He added that he doesn’t expect there would be major regulatory hurdles impeding a deal, given the lack of significant geographic overlap between West Fraser and Kronospan.

Wilde has an outperform recommendation (the equivalent of a buy) on West Fraser, and a price target of US$112.00 per share, implying a potential return of 35 per cent from Monday’s closing price for West Fraser’s New York-listed shares.

Similar to Wilde, Smead Capital Management President Cole Smead questioned the timing of the reported approach by CVC and Kronospan.

“We are nowhere near boom prices on lumber and this bid looks like it's trying to take advantage of the fear. Jim Pattison will have to weigh in on this for his investment,” he said via email, adding he thinks it would take $145 to $150 “to get a deal done.”

A representative for Smead Capital Management said the firm owns roughly 70,000 West Fraser shares.

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