Vancouver, British Columbia-based West Fraser Timber has agreed to acquire Toronto-based Norbord, creating a diversified wood products business operating as West Fraser. The all-stock deal is valued at about C$4 billion (US$3.1 billion) and is expected to close in Q1 2021. Brookfield Asset Management, which holds a 43 percent interest in Norbord, has agreed to support the transaction.
VANCOUVER, BC and TORONTO, ON, November 19, 2020 –– West Fraser Timber Co. Ltd. (“West Fraser”) (TSX: WFT) and Norbord Inc. (“Norbord”) (TSX and NYSE: OSB) today announced that they have entered into a strategic business combination pursuant to which West Fraser, a leading North American diversified wood products company will acquire all of the outstanding common shares of Norbord, the world’s largest OSB producer, in an all-stock transaction valued at approximately C$4.0 billion (US $3.1 billion) (the “Transaction”). Following closing, the combined company will operate as West Fraser.
With a complementary range of products, increased scale, and greater geographic and end-market diversification, West Fraser will be a global wood products leader, with established and growing positions in both North America and Europe. With low cost and profitable operations in complementary sectors, West Fraser is expected to generate more stable and resilient earnings through the cycle, with a best-in-class platform for future growth and value enhancement. At the close of this Transaction, West Fraser will be a top global producer of both lumber and OSB.
“Norbord’s OSB production is a perfect complement to the West Fraser portfolio, enabling us to deliver a wider range of wood products, and making us a more complete, efficient and valuable partner for our customers,” said Raymond Ferris, President and Chief Executive Officer of West Fraser.
“Norbord is the largest global OSB producer with a well-earned reputation for cost and margin performance, and for expanding the use of OSB in new applications and industries. The Norbord business will also bring additional geographic diversity, and an expanded opportunity set, from its well-established positions in the United Kingdom and Western Europe. This Transaction gives us additional financial flexibility to pursue strategic growth opportunities, and better positions our company to deliver value to shareholders through the cycle. Our companies have complementary operating cultures, with a common priority on safety, sustainability and cost management, and we are thrilled to welcome Norbord’s talented employees to West Fraser. We look forward to drawing from best practices across the operations as we pursue the significant strategic opportunities this Transaction will unlock.”
“This Transaction recognizes Norbord’s global OSB position and is a very exciting opportunity for our customers, our employees and our shareholders,” said Peter Wijnbergen, President and Chief Executive Officer of Norbord. “Joining West Fraser will allow us to expand our profile with our core new home construction customers, and provides a stronger platform to pursue our industrial OSB products strategy. Norbord shareholders will have meaningful participation in a more diversified and resilient wood products leader with a superior ability to accelerate growth, and an impressive track record of cost leadership, margin performance, and shareholder returns. For our team, this will provide expanded opportunities as part of a larger company with common values and a shared priority on safety. Our Board and executive team have great respect for West Fraser, and we look forward to being a part of a much broader business with the West Fraser team.”
The companies have entered into a definitive agreement pursuant to which West Fraser will acquire all of the shares of Norbord. Norbord shareholders will receive 0.675 of a West Fraser share for each Norbord share, which equates to C$49.35 (US$37.78) per Norbord common share, based on the closing price of West Fraser common shares on November 18, 2020. This represents a 13.6% premium to the closing price of Norbord’s shares on the TSX on November 18, 2020, and a premium of 8.0% based on the 10 day volume weighted average trading prices of both companies. Upon closing current West Fraser shareholders will own approximately 56% of the company, with current Norbord shareholders owning approximately 44%.
A Diversified Global Wood Products Leader
This Transaction firmly establishes West Fraser as a leader in the global wood products industry, with a greater platform for shareholder value creation founded on a premier product mix, strong balance sheet, and enhanced scale and diversity.
Expanded, higher value, customer relationships – with a combined home and building construction product offering that includes a wide range of lumber and OSB panel applications, as well as other engineered wood products, the combined company is more relevant, efficient and valuable for its principal pro-dealer, homebuilder, and building construction customer segments.
Unlocks and de-risks strategic growth potential – the combined business will have the operational platform and financial capacity to accelerate growth in the North American lumber and industrial panels segments, as well as in both lumber and OSB in Europe.
Expanded product portfolio and additional operating talent – the Transaction adds a strong cash flow generating OSB business to West Fraser’s existing portfolio. As complementary businesses producing and selling distinct products, West Fraser intends to retain all Norbord mills in North America and Europe, and rely on the skills and experience of current Norbord management and employees to continue to grow the engineered wood business. West Fraser will continue to maintain a significant office presence in Vancouver, Toronto, Quesnel and Memphis, as well as in Norbord’s existing European locations.
Meaningfully enhanced capital markets profile – with last twelve months (LTM) combined revenues of C$8.0 billion (US $5.9 billion) and LTM Adjusted EBITDA of C$1.7 billion1 (US $1.2 billion), West Fraser will be a clear leader among historical peers, and well-positioned among a larger comparable peer universe. With a strong balance sheet and leverage position, West Fraser expects the Transaction will lead to a reduced cost of capital. To facilitate the further participation of investors in West Fraser’s securities, West Fraser will apply to list its common shares on the New York Stock Exchange on or prior to closing, and intends to begin reporting its financials in U.S. dollars following closing.
More stable cash flows and increased resilience – with increased scale, and diversity across products and end uses, geographies, and markets, the combined company will have a stronger financial ability to weather volatility and deliver returns through the cycle.
Balanced Capital Allocation – West Fraser expects to continue its long-term track record of balanced capital allocation including maintaining appropriate financial flexibility, strategically investing to maintain low cost operations, and efficiently returning capital to shareholders on a regular basis.
Meaningful synergies extend track record of cost leadership – the companies are already leaders on costs and Adjusted EBITDA1 margins in their respective segments, and the Transaction is expected to improve that performance through meaningful synergies of up to C$80 million (US$61 million) annually from fibre supply chain simplification, shared purchasing programs, transportation optimization, leveraging technology to improve reliability and productivity, and more efficient capital allocation. These synergies are expected to be achieved within two years of closing.
West Fraser will continue to be led by Mr. Ferris as Chief Executive Officer and Chris Virostek as Chief Financial Officer. Following closing, Mr. Wijnbergen will be appointed President, Engineered Wood, responsible for the company’s OSB, plywood, particleboard, MDF and veneer operations. Sean McLaren, currently West Fraser’s Vice-President, U.S. Lumber, will be appointed President, Solid Wood, responsible for all of the company’s lumber operations.
West Fraser’s Board of Directors will continue to be chaired by Hank Ketcham. At closing, two of Norbord’s current independent directors will join the West Fraser Board.