Canfor privatization deal called off after failing to win shareholder support

Canfor says Great Pacific Capital has called off its plan to take the lumber producer private after the deal failed to win the approval of the company's minority shareholders.

Based on shareholder votes cast by proxy ahead of a Monday deadline, the offer of $16 per share by the Jim Pattison Group company had just 45 per cent support from the minority shareholders, the company says.

A special meeting of Canfor shareholders scheduled for Wednesday has been cancelled. Great Pacific holds a 51 per cent stake in Canfor.

The managing director of ERA Forest Products Research, an independent financial research company, says that Great Pacific's offer was "egregiously low" for a company that had been buying back shares at $27 just a year ago.

"[The offer] was definitely significantly undervaluing the company and trying to pick it up very opportunistically at a trough in the cycle," said Kevin Mason. "Thankfully, in this case, the minority shareholders kind of scored a win in that front."

The privatization offer required approval by a two-thirds majority vote by shareholders and a simple majority of the votes cast by shareholders after excluding any votes of Great Pacific and certain others.

Investment management firm Letko, Brosseau & Associates, which controls about a 4.8 per cent stake in Canfor, said in September that the offer was too low and planned to oppose the deal.

Great Pacific said the offer was within a range determined to be fair by a Canfor special committee and its advisers.

"Great Pacific looks forward to Canfor's continued success and will continue to support the management and directors of the company," the firm said.

The news comes at the end of a challenging year for B.C.'s lumber industry, which continues to reel from a combination of factors — notably the slowing U.S. housing market, lower demand from China, the impact of wildfires and the end of the mountain pine beetle cut.

At the start of the year Canfor operated 13 sawmills in the province, most of them located in the Interior. All have been hit with curtailments, shift reductions, and in the case of Mackenzie and Vavenby, complete closures. 

Mackenzie Mayor Joan Atkinson says the sawmill in her community has been sitting idle for about six months, leaving more than 70 mill workers without a job. The collapsed deal does nothing to clear up the uncertainty in the industry, she said.

"The fact that the deal with Canfor and Jim Pattison looks like it's not proceeding, I have no idea how that's going to impact our community," she said.

But Mason says, in the long term, the failure to privatize Canfor is good news for the province's forestry industry.

"We've seen in some other instances where, definitely, investment flowed out of the province. I think there's more chance of things perhaps being in B.C. with being a public company."

Shares in Canfor fell more than 20 per cent on news of the cancelled deal.

Shares were down $3.56 at $12.00 in early trading on the Toronto Stock Exchange. The stock had traded for $8.80 before Great Pacific made its offer on Aug. 10.