Acquisition by Florida-based company to accelerate Tembec's growth strategy

MONTREAL (Scrap Monster): The acquisition by Florida-based Rayonier Advanced Materials is expected to immensely benefit Tembec, especially at a time when the company is under pressure, mainly on account of hefty countervailing duties imposed by the US administration on Canadian softwood. The big size and the liquidity of the acquirer firm would help Tembec cover the costs of paying millions in duties. At the same time, the acquisition will help boost Tembec’s capital investment plans in Quebec over the coming years.

Early this week, Tembec had agreed to an US$807 million take-over offer by Jacksonville-based Rayonier Advanced Materials. The friendly deal, including the assumption of $487 million of Tembec’s debt, was announced on May 25^th. As per the deal, the Florida-based conglomerate had announced that it will offer Tembec shareholders, 0.2302 shares of the new entity for every single share that they own. The deal had also mentioned that Canadian headquarters will continue to operate in Montreal and that all of Tembec’s existing facilities will be maintained and accordingly upgraded.

The transaction has been approved by boards of Tembec as well as Fairfax Financial which holds almost 20% shares of Tembec. It now awaits approvals from shareholders and regulatory bodies in the US and Canada. It is expected to close in the second half of 2017, subject to the above approvals.

Commenting on the deal, Paul Boynton, chairman and CEO of Rayonier Advanced Materials stated that the acquisition comes as a strategic fit, mainly because it complements its specialty cellulose business. Further, it will help the company to enter into new areas of operations including packaging, forest products, newsprint and pulp. James Lopez, Tembec’s chief executive noted that the deal offers the liberty of more resources which could be invested in future growth of the combined entity.

The deal is considered beneficial for both the companies, as the combined entity is expected to deliver better results than they could on a standalone basis. As per estimates, the combined company is expected to generate annual EBITDA earnings of $400 million. Also, the annual revenues are expected to touch $2 billion. On one side, the deal would help Rayonier Advanced Materials to achieve more diversification in product line and geography. On the other hand, the deal will help Tembec to bolster its balance sheet and go ahead with its planned $136 million investment plans at Quebec facilities.

Earlier in March 2017, Tembec had announced a major four-year capital investment program aimed at improving competitiveness at its Quebec facilities. The $136 million capital investment, mainly targeted at the specialty cellulose operation at the Temiscaming manufacturing site, is expected to result in replacement of 11 existing pulp digesters at the facility. Also covered is the modernization works at the Matane high-yield pulp facility.

Rayonier Advanced Materials is the leading global supplier of high-purity, cellulose specialties products, a natural polymer for the chemical industry and a leading producer of absorbent materials utilized in the manufacturing of everyday consumer products.

Tembec is a manufacturer of forest products – lumber, paper pulp, paper and specialty cellulose pulp – and a global leader in sustainable forest management practices. Tembec has operations in North America and France with some 3,250 employees and has annual sales of approximately $1.5 billion.