Jim Pattison makes offer to take Canfor Corp. private at $16 per share

Businessman and philanthropist Jim Pattison speaks during a Canada's Walk of Fame ceremony honouring him, in Vancouver, on Friday, Feb. 15, 2019. (Darryl Dyck / The Canadian Press)

VANCOUVER - Shares of Canfor Corp. closed up more than 70 per cent Monday after a Jim Pattison Group company made a $16 a share bid to take the company private.

Pattison's Great Pacific Capital Corp., which already owns about 51 per cent of the lumber producer, made the all-cash offer over the weekend that was a 60-per-cent premium to the company's 60 day average price and an 81.8-per-cent premium to Friday's close.

Canfor shares closed up $6.46, or 73.4 per cent, at $15.26 on the Toronto Stock Exchange after closing at $8.80 Friday.

Great Pacific says the proposed transaction, which values Canfor at about $2 billion, will allow for the elimination of the significant costs related to maintaining a public company listing and allow for reinvestment of that money in the company's operations.

It says the company is facing important strategic and capital decisions that it believes are best suited to a private company with a long-term focus.

Canfor says it has formed a special committee of independent directors to review the offer and consider its strategic alternatives.

CIBC Capital Markets analyst Hamir Patel said in an analyst note that he estimates the share offer represents a much lower valuation on capacity than other forestry deals in recent years.

He figures the $16 a share offer values Canfor's capacity of 6.55 billion board feet a year at US$298 per thousand board feet, well below the US$615 per thousand board feet West Fraser Timber Co. Ltd. paid for Gilman Co. in 2017 and the US$525 per thousand board feet Canfor paid for Elliott Sawmilling last year.

The lower valuation reflects Canfor's high exposure to B.C., where log costs have spiked from a supply crunch, as well as significant deterioration in market conditions over the last year, said Patel.

RBC Dominion Securities Inc. analyst Paul Quinn said in a note that he believes the deal has a high probability of closing as proposed, given how much of the company's shares The Jim Pattison Group already owns.

Quinn said the “vote of confidence” could spark more interest the forestry sector, which especially in B.C. has seen significant challenges in recent months.

The sector has struggled after lumber prices dropped by more than half from record highs last summer as the U.S. housing market slowed. At the same time, B.C.'s sector has been struggling after the fallout of the mountain pine beetle and wildfires have led to a shortage of available timber, raising the costs of fibre for lumber producers.

Companies have responded by significantly cutting back capacity in the province, including numerous curtailments and several permanent mill closures.

By Ian Bickis in Toronto