Canada-headed forest products major Conifex Timber Inc. (Conifex) has announced that it has entered into a share purchase agreement with an affiliate of compatriot forest industry major Resolute Forest Products Inc. (Resolute) for the sale by Conifex of its US sawmill business and related operations. The purchase price for the three sawmills, payable in cash, is US$163 million along with net working capital at closing which is currently estimated at US$7 million.
Founded in 2008, Conifex and its subsidiaries’ primary business currently includes timber harvesting, reforestation, forest management, sawmilling logs into lumber and woodchips, and value-added lumber finishing and distribution. Conifex’s lumber products are sold in the United States (US), Chinese, Canadian and Japanese markets.
Conifex has expanded its operations to include bioenergy production following the commencement of commercial operations of its power generation facility at Mackenzie, British Columbia (BC).
The three sawmills in its US sawmill business have a combined production capacity of 550 million board feet and are located in the US South – Cross City (Florida), and Glenwood and El Dorado (Arkansas). The net proceeds from the sale will be used by Conifex to repay in full its outstanding lumber segment credit facility and for working capital and general corporate purposes.
Successful completion of the transaction positions us to retire our entire lumber segment borrowings and strengthens our balance sheet. With greater financial stability, we will be focused on enhancing the performance of our lumber manufacturing and power generation businesses in Mackenzie, BC. We are pleased that our US employees will have the opportunity to become part of an organization that has demonstrated expertise in lumber manufacturing and an objective of growing the scope and scale of its lumber business in the US South, said Ken Shields, President, and CEO of Conifex.
The sawmills produce construction-grade dimensional lumber and decking products from locally-sourced southern yellow pine (SYP) for distribution within the US. Production capacity for Cross City is 185 million board feet and it is currently operating on a two-shift basis. Glenwood’s capacity is also 185 million board feet and it is operating on a 1.5 shift basis.
The El Dorado mill, with a capacity of 180 million board feet, was recently idled. Resolute intends to build on Conifex’s significant capital investments in recent years, including US$55 million previously invested in El Dorado, US$23 million in Glenwood and US$12 million in Cross City.
This transaction will provide immediate scale in the attractive U.S. South, with quality assets in a rich fiber basket, close to growing end-markets. Scaling our lumber business forms a key part of our stated transformation strategy. This transaction will also diversify our lumber production: when operating to capacity, almost 25 percent of our production will be in the U.S. South, said Yves Laflamme, President and CEO, Resolute.
Resolute says that it is well-positioned to generate synergies and related benefits with this acquisition by:
- complementing the mills’ workers and staff with Resolute’s deep sawmilling expertise to improve asset reliability, productivity, and safety performance;
- completing the necessary capital upgrades of approximately US$20 million to gradually restart the El Dorado mill in 2021;
- using the company’s strong financial position to support the contemplated improvement initiatives and capital projects, to improve fiber procurement and to ensure the appropriate level of working capital;
integrating corporate functions along with the nearby pulp, paper, and tissue assets in Florida, Tennessee, Alabama and Mississippi to generate synergies in fiber procurement, environmental management, human resources management, and procurement; - and leveraging the company’s existing surplus tax attributes.
Resolute expects that most employees currently associated with the three assets, including management, will remain with the organization and that they will be offered terms of employment on substantially similar terms, effective upon closing of the transaction. Resolute intends to finance the acquisition with its existing credit facilities.
CIBC Capital Markets and Raymond James Ltd. acted as financial advisors to Conifex on the transaction whereas Sangra Moller LLP acted as legal advisor to Conifex. TD Securities Inc. acted as financial advisor to Resolute on the transaction while Akerman LLP acted as Resolute’s U.S. transaction counsel, Rose Law Firm as local Arkansas counsel and Stikeman Elliott LLP as Canadian transaction counsel.
The transaction, which is subject to regulatory approvals and customary conditions, is expected to close in the first quarter of 2020. The transaction is subject to termination if closing conditions are not met or waived by May 29, 2020.
