‘Pushing us little guys’: Canfor investors rail against billionaire Jim Pattison as vote on deal looms
With less than a week left for shareholders in the Vancouver-based timber company Canfor Corp. to vote on a $16 per share buyout offer, small and large investors are balking that the offer is too low, setting up a fight with the billionaire Jim Pattison.
Pattison’s Great Pacific Capital Corp., which already owns 51 per cent of Canfor, announced its offer in August to take the company private just as a confluence of events pummelled the timber industry: a bark beetle infestation and record forest fires forced mill closures throughout British Columbia, U.S. tariffs and global trade disputes spurred concerns of an economic slowdown and housing starts in the U.S. slowed considerably.
In our view, the deal significantly undervalues Canfor
Mark Wilde, an analyst at BMO Capital Markets
Canfor’s shares had declined as result from above $30 in August 2018 to $8.80 this past August when Pattison made his offer. To analysts, it was either an 81 per cent premium to the trading price and a chance to gain liquidity, or an opportunistic offer to buy the company that coincided with its lowest trading price in years.
Reached by phone on Tuesday, Pattison declined to say why investors should vote for his offer; and instead, transferred the line to Glen Clark, the former premier of British Columbia from 1996 to 1999, the chief operating officer of Great Pacific and a board member of Canfor.
“I’m kind of neutral on the thing; I’m in some ways conflicted,” Clark told the Financial Post.
Pressed for a comment, he endorsed the deal, saying, “Of course they should vote [for] it, would be my perspective.”
Clark said that Great Pacific hasn’t budged off its $16 per share offer because “we’re not too fussed about it:” if shareholders want to reject the deal, that’s fine, he said. His company is a long-term investor and can always come back in the future with a new offer if this deal doesn’t work out, he said.
The deal has divided some analysts who cover the company.
Hamir Patel, an analyst at CIBC Capital Markets, lowered his price target for the company to $16, and wrote that although the shareholder vote will likely be close, he does not believe the dissenting shareholders have the votes to block the deal.
Patel wrote that his valuation of the company reflects “B.C. fiber supply constraints and increased uncertainty about the medium to long-term supply/demand balance.”
Meanwhile, Mark Wilde, an analyst at BMO Capital Markets, wrote that the board’s decision to recommend a sale at $16 per share “is one of the least satisfying (outcomes) that we’ve seen in three decades covering the sector. We believe longer-term investors among the minority holders have every right to be angered by the Board’s focus on short-term metrics.”
According to his analysis of Canfor’s five acquisitions since 2014, the company paid on average US$467 per thousand board feet of lumber capacity it acquired. But Pattison’s offer provides shareholders with only US$268 per thousand square feet.
“To be crystal clear: we don’t think minority shareholders are being treated reasonably from a valuation perspective,” Wilde wrote. “In our view, the deal significantly undervalues Canfor.”
In a statement, Canfor said it recommended the deal based on ongoing industry headwinds and structural changes occurring in the sector that are different from traditional industry cycles.
For the transaction to complete, a majority of the minority shareholders must vote for the deal by Dec. 16. Some are speaking out against the deal.
Most prominently, Letko Brosseau & Associates Inc, which said it controls 4.7 per cent of the company’s shares, plans to vote against the deal.
Stephane LeBrun, a senior portfolio manager at Letko Brosseau, noted in the third quarter of 2018, Canfor’s board of directors repurchased 2.3 million shares at an average price of $27.90 — 74.3 per cent more than the board recommended shareholders accept when it endorsed Great Pacific’s bid.
“That share buyback was based on long-term plans,” LeBrun said. “We find that although this year has been tougher, we do see a lot of positive signs as far as just the pricing of lumber which has increased a lot since the summer.”
He also said that his firm has heard of a few other shareholders, some large, some not, who plan to vote against the deal.
Christoph Butz, a senior investment manager at London-based Pictet Asset Management who did not disclose the size of his stake in the company, said via an emailed statement that the $16 per share offer is “grossly at odds with the Board’s own capital allocation” and called the bid opportunistic.
“We have been a long term shareholder of Canfor and we believe the inherent value of the company based on a mid-cycle valuation to be in the mid to high 20s,” Butz said.
Lance Rogers, 70, who described himself as a pensioner in Burnaby, B.C., said he bought shares of Canfor when it was trading above $30 in 2018, thinking it was a volatile market but it would be a long-term investment.
He said he was attracted to the company after Pattison invested.
“He didn’t turn out to be what I expected,” said Rogers. “He’s kind of just pushing us little guys out of the way and I’m really disappointed.”