Recent activity at West Fraser Timber Co. Ltd. has revealed that British Columbian billionaire Jim Pattison owns a significant minority stake in the company, prompting speculations of a merger with rival Canfor Corp., according to an analyst.

Pattison owns 10 per cent of West Fraser, North America’s No. 1 lumber producer, said Paul Quinn, a paper and forest-products industry analyst at RBC Capital Markets, and already owns a majority stake in Canfor, North America’s No. 2 lumber producer.

“That automatically brings up the idea of Canfor and West Fraser coming together,” said Quinn. “It’s an interesting idea, but would be very difficult to accomplish.”

Pattison has owned the same stake in West Fraser since 2011, Quinn said. However, it wasn’t until after a series of share-repurchases by the company – which reduced the size of West Fraser’s pool of outstanding shares – that Pattison’s stake amounted to just over 10 per cent, which is the threshold at which shareholders must disclose their holdings, under Canadian Securities Administration regulations.

Quinn mused about what a merger of the two would look like in a research note to clients.

Since they are the two dominant forest companies in B.C.’s interior, Quinn sees certain “synergies” in a combination through reducing supply costs at combined operations, particularly the combined eight pulp mills between the two, and in a single head office.

“I have no idea what (Pattison) wants to do,” Quinn said. “He obviously likes the (forestry) sector, it’s a good long-term investment.”

However, Quinn said because of Pattison’s history with owning big stakes in forest companies that merge (in 2003 he held big stakes in Canfor and Slocan Forest Products before they combined in a $455-million deal) “we could argue that a combination is a possibility.”

A merger would create the world’s largest lumber producer, with considerable presence in both Canada and the U.S. In his research note, Quinn said consolidation of the two companies would make some sense considering that the province will have to reduce timber harvests in the near future due to the mountain pine beetle infestation.

Harvests were ramped up to salvage beetle-killed trees, but the ministry has started cutting back to let forests recover.

However, combining the companies would also represent a big concentration in the ownership of timber harvesting rights — representing 53 per cent of interior B.C. lumber production — which would likely be a non-starter for government, said analyst Kevin Mason.

“From Pattison’s perspective, there is some strategic rationale (to a merger),” said Mason, an independent analyst with the firm ERA Forest Products Research.

“The government hurdle would be B.C.’s forest industry does face big challenges from both softwood lumber duties imposed by the U.S. in a trade dispute with Canada and the prospect of reduced timber supplies,” Mason said, adding that both Canfor and West Fraser are big enough on their own to weather those problems.

Pattison was travelling and did not respond to a Postmedia call for comment.

A merger would also prove controversial in a region that has already seen mill closures as the two firms traded interests in 2013 and 2014.

Canfor closed a sawmill in Quesnel and West Fraser its operation in Houston, at the cost of 434 jobs, with both companies citing a lack of available timber in the interior’s mountain-pine-beetle-ravaged forests to keep both of them going.