Rayonier Advanced Materials will “come to bat” to protect the interests of Tembec in the cross-border battle over softwood lumber, the head of the Florida-based company said Thursday after announcing a friendly takeover of the Quebec forestry firm.
The deal, valued at US$807 million including debt, would see the merged entity keep a Canadian headquarters in Montreal, with the main corporate office in Jacksonville, Fla.
“We’ll be supportive of whatever works best for Quebec, Ontario and our position here,” Paul Boynton, chairman and CEO of Rayonier Advanced Materials, told a news conference in Montreal after the transaction was announced.
The transaction comes as Tembec, like other Canadian forestry companies, finds itself in the crosshairs of the U.S. over softwood lumber. Last month, it and other firms were slapped with a 19.88 per cent retroactive preliminary duty on softwood shipments south of the border.
The takeover won’t affect that countervailing duty. But Tembec CEO James Lopez said the size and liquidity of Rayonier Advanced Materials will help cover the costs of paying it while also forging ahead with planned capital investments, including $136 million over four years in Quebec.
Tembec is less exposed to the U.S. softwood battle than it was a decade ago the last time the dispute erupted after selling its two mills in B.C. and three in Quebec.
Still, it’s not expected to emerge from this latest standoff completely unscathed. Earlier this month, Lopez said he didn’t think job losses were in the offing — at least in the short term — though that could change if prices for lumber fall during the seasonal end to the home construction season.
Forest products would account for about 16 per cent of the combined company’s US$2 billion in annual sales and 3.2 per cent of its operating profit, Tembec and Rayonier Advanced Materials said. Tembec’s 755 million board feet of production capacity accounts for less than three per cent of total Canadian output of softwood lumber.
Boynton said Tembec made for an attractive acquisition because it complements Rayonier Advanced Materials’ specialty cellulose business and it allows it to enter new operations like packaging, forest products, newsprint and pulp.
He repeatedly vowed to maintain Tembec’s existing operations and jobs despite seeking to cut US$50 million in costs over three years.
That didn’t totally satisfy Unifor, which represents 900 workers at Tembec.
“We are concerned that the headquarters of Canadian operations in Montreal will have only a minor role in the direction of the company’s operations,” Unifor director Renaud Gagne said in a news release.
The sale of Quebec-based companies be a sensitive issue in the province, which has seen the likes of Rona, St-Hubert and Uniprix Group all taken over in the last year.
Premier Philippe Couillard was asked about the deal, which has the unanimous approval of each company’s board of directors, while on a trip to Israel.
“I remind you that when the two boards of directors decide in a consensual way to conclude a transaction, they must be allowed to act,” he said.Lopez tried to calm such concerns, saying that most of Tembec’s large shareholders are already U.S. investment funds while investment plans by Rayonier Advanced Materials will support Tembec’s facilities and employment.
“The owners are changing but the business model doesn’t change.”
Tembec shareholders (TSX:TMB) are being offered C$4.05 in cash or 0.2302 of a share in Rayonier Advanced Materials, subject to a cap on the total amount of cash or shares that will be issued. The purchase price is 37 per cent above the Wednesday closing price for Tembec on the Toronto Stock Exchange.
Shares in Tembec soared to their highest level in more than six years, gaining 38.3 per cent to $4.08 in afternoon trading.
Founded in 1972, Tembec produces lumber, paper, pulp and specialty cellulose pulp. It has about 3,000 employees in Canada and France.
Rayonier Advanced Materials is a supplier of high purity cellulose, used in cellphones, computer screens, filters, textiles and pharmaceuticals. It has about 1,200 workers with plants in Florida and Georgia.
The proposed takeover still requires approvals from courts, regulators and shareholders. It is expected to close in the second half of 2017.
Boynton said Rayonier Advanced Materials would be interested in eventually adding more softwood lumber capacity but wouldn’t say if such acquisitions would involve Canadian or U.S. operations.
Note to readers: This story clarifies a point. A previous version in subsequent references referred to Rayonier Advanced Materials as Rayonier. Rayonier is a separate company from Rayonier Advanced Materials.