One of Western Canada’s largest paper producers is bidding on East Coast rival Domtar Corp., the latest sign of consolidation in the burgeoning forest products industry.
Domtar has revealed that it is in talks to buy out Paper Excellence, a private company based in Richmond, British Columbia, a deal that could be worth more than US $ 3 billion. The potential transaction would create one of the largest pulp and paper companies in the world, and was first reported on Monday by Bloomberg. In a press release, Domtar said, “These discussions may or may not lead to an agreement.”
“While it is always difficult to predict whether a trade will take place, we believe it is more likely than not,” Scotia Capital analyst Benoit Laprade said in a report on Domtar on Tuesday. He said: “The business is at stake, so any potential buyer now has the opportunity to respond.”
Paper Excellence could pay up to US $ 55 per share for Domtar, Laprade said, which would value the company at US $ 3.2 billion. Domtar’s share price, listed on the New York and Toronto stock exchanges, rose 19% on Tuesday to close at US $ 48.30 on the NYSE.
A successful takeover of Domtar would follow the $ 4 billion purchase by West Fraser Timber Co. Ltd. from Norbord Inc., which closed in February, and a rally in cyclical forest product inventories driven by soaring commodity prices. Paper Excellence is bidding for Domtar at a time of rising pulp prices and analysts expect the industry to consolidate around its most powerful players.
Over the past decade, Domtar has maintained its leadership in the low-grade uncoated paper market that analysts call “base paper” while increasing production of items with higher profit margins, such as pulp. in flakes, which is used to make disposable diapers and feminine hygiene. some products. In a recent report, RBC Capital Markets analyst Paul Quinn highlighted two rival U.S. paper companies – Packaging Corp. of America and Westrock – as potential buyers of Domtar. Mr. Quinn said, “Domtar has been able to leverage the cash flow of a declining business into relatively more attractive markets such as specialty papers and flake pulp.”
According to Quinn, Domtar’s earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to grow from US $ 344 million last year to over US $ 500 million over the next two years. Domtar has seven paper mills and six pulp mills in Ontario, Quebec, British Columbia and the eastern United States, and employs 10,000 people.
Paper Excellence is controlled by Jackson Widjaja, a third generation member of an Indonesian billionaire family that also owns one of Asia’s largest pulp and paper companies. It was founded in 1912 in Powell River, with the construction of the first newsprint mill in Western Canada.
The company has gone through a series of foreign owners and has been known over the years as Fletcher Challenge Canada Ltd. (controlled by New Zealand) and Norske Skog Canada Ltd. (under Norwegian control). The name changed to Catalyst Paper Corp. in 2005 and Paper Excellence acquired the company in 2019. Paper Excellence has eight Canadian facilities and 3,000 employees in British Columbia, Saskatchewan and Nova Scotia.
Domtar has its Canadian roots in Nova Scotia in 1903, when the Dominion Tar and Chemical Co. Ltd. started a business that treated railway ties and quay piles with coal tar to prevent rotting. In 1965, the company moved into paper products and changed its name to Domtar. Lots of JK Rowling Harry Potter books sold in North America were printed on paper from a Domtar plant in Pennsylvania.
Next year, Domtar plans to enter the packaging market by completing the conversion of a Tennessee paper mill to a lightweight cardboard box manufacturing plant.
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