Does anyone think BCC will make a play for NEXFOR now?
newswire.ca
Boise Cascade Discontinues Bidding for Le Groupe Forex
BOISE, ID, Aug. 13 /CNW/ - Boise Cascade Corp. (NYSE: BCC) announced
today that it will not submit another bid for Le Groupe Forex (Montreal: FOX).
On August 6, 1999, Boise Cascade made a second offer to purchase Forex. The
second offer was for up to C$33 per share -- an offer that was essentially
matched by Louisiana-Pacific August 12, 1999.
''We believe our last offer fully and fairly priced Forex,'' said George
J. Harad, Boise Cascade's chairman and chief executive officer. ''To continue
bidding at a price above the current offer would not be in the best interests
of Boise Cascade and our shareholders.''
Boise Cascade Corp., headquartered in Boise, Idaho, is a major
distributor of office products and building materials and an integrated
manufacturer and distributor of paper and wood products. The company also
owns and manages over 2 million acres of timberland in the United States.
Visit the Boise Cascade Web site at www.bc.com.
stockhouse.com
Is Boise Cascade Positioning Itself To Move On Nexfor - Or Will It Take Groupe Forex?
• • •
StockHouse spoke with Sam Magid, one of the most well respected forestry sector analysts in the country and Head of
Institutional Equity at Salman Partners. Magid shares his thoughts on inevitable merger opportunities, particularly the
possibility of a Boise Cascade [BCC] move on Nexfor [T.NF], as well as his top three picks on who will exceed earnings
expectations next quarter.
Each of the last 14 years have seen a gradual shift in product demand within the structural panel market, with a higher
percentage gravitating toward the use of oriented-strand board (OSB) over plywood. US housing starts continue to have
a strong impact on North American solid/structure wood demand and have influenced the current higher OSB prices.
In addition, the structural panel market is experiencing a number of bidding wars involving several OSB producers.
The battle over Le Groupe Forex [M.FOX.A] has been heating up with American forestry giant Louisiana-Pacific [LPX] raising its original offer to better a $700 million bid from
rival Boise Cascade.
Louisiana-Pacific boosted its offer to $31 a share in cash - $5 higher than the $26 a share it offered in late June for all of Forex's 23 million fully diluted shares. On a cash basis,
Louisiana-Pacific's bid is superior to the $30 a share in cash Boise offered on July 28, a bid worth $700 million. In the latest round of wooing, Boise has upped the ante to C$32.
Magid gives us his thoughts on the likely outcome.
Forex's board of directors has already endorsed the latest bid by Portland based Louisiana-Pacific, but if Forex decides to accept a better bid from someone else, it must pay
Louisiana-Pacific a $23 million breakup fee.
Slocan [T.SFF] is one of Canada's largest lumber producers, with West Fraser [T.WFT] and Canfor [T.CFP] close behind. Magid foresees a takeover bid from possisbly some US
companies such as Georgia Pacific for Slocan but predicts shareholders would once again reject an offer from Canfor. .
• • •
StockHouse: Louisiana Pacific had originally offered $26 a share for Groupe Forex. Boise Cascade
upped the ante with a $30 offer and most recently Louisiana has come back with a $31 bid. What
do you see as the eventual outcome of this bidding war?
Sam Magid: I would estimate that Louisiana Pacific [LPX] will be the victor and Boise
Cascade [BCC] will move towards another oriented-strand board [OSB] player in Canada.
There is a very limited supply of OSB available. There are only a few public companies that
produce OSB, MacMillan Bloedel [T.MB] was one, and now MacBlo has been taken over by
Weyerhaeuser [WY]. Groupe Forex [M.FOX.A] was another one, and that has been taken over.
That leaves only three other OSB players that are public in Canada: Nexfor [T.NF], which is
widely held; Ainsworth [T.ANS], which is the next biggest producer, but the family owns over
61% of the stock so it is not susceptible to a hostile takeover, and the family has spurned many
unsolicited bidders already; and Groupe Forex which made a deal with the controlling
shareholders.
In my opinion, you are going to see Boise Cascade decide to let Groupe Forex go to Louisiana
Pacific and immediately make a move towards Nexfor, which has no controlling shareholder and
is extremely liquid.
StockHouse: Nexfor had a good second quarter with earnings of $0.21 per share. Was that short of your estimates?
Sam Magid: Half way through the quarter, I revised upwards my second quarter numbers just because of the incredible rate we have seen in OSB prices. Third quarter numbers are in the bag
for all these OSB producers because Slocan, Nexfor, Ainsworth [T.ANS], Groupe Forex, Louisiana and Boise are all sold out entirely for the month of August. Quarter three already looks
like it's going to be at least $0.26 to $0.28 per share for Nexfor.
StockHouse: Has OSB replaced plywood as the building product of choice?
Sam Magid: Absolutely. Plywood is dead. The structural panel market is composed of two products - plywood and OSB. Even though the overall market has grown consistently for the last
14 years, every year there has been a higher percentage of the overall market going towards OSB. In other words, you see substitution away from plywood into OSB.
StockHouse: When is production expected for Nexfor's new OSB mill in Carolina?
Sam Magid: It looks like it will up in December of 1999. At a little over 510 million square feet, it's going to be a big, massive mill. What makes Nexfor even more attractive as a take-over
target now is that mill is going to be running months ahead of schedule.
StockHouse: Is this a move to further expand in the US?
Sam Magid: Yes. Nexfor is already pretty significant in the US with their paper assets, their pulp assets. They also have private timber lands in Maine. The next OSB mill coming on line
is Nexfor's and it also happens to be in the US, which is extremely beneficial from a political and environmental basis.
I think you will see more consolidation. A lot of profits have been made in the paper and forest products index - for the first six months this year it's up over 35%. It looks like we are
moving into more explosive earnings growth.
StockHouse: The latest quarter financials for all major producers are up considerably from last quarter; many are just off their 52-week high. Where is this momentum coming from?
Sam Magid: It's all coming from rising earnings and rising cash flow. The best indicator of stock price performance that we have found is free cash flow. For example Slocan generated $0.92
per share in earnings for quarter two, but Slocan is a $1.1 billion company, with only $15 million in maintenance capital expenditures. The forestry sector has spent so much time
replenishing their assets they aren't building new capacity any more, so their capital expenditures are down and you are seeing lots of free cash flow. At the end of the year they have mega
cash in their books, or in their bank accounts.
StockHouse: Slocan has recently announced a pact with Canfor. Do you eventually see a
Canfor-Slocan merger?
Sam Magid: Canfor has tried numerous times to merge with Slocan. Slocan is a much lower cost
operator than Canfor, so I believe someone will attempt to take over Slocan again, which is
evidenced by Jim Pattison moving up to 15%. Pattison is not buying 15% of Slocan for his
health. There is no dividend on the stock and you don't go to 15% unless you know something.
He is going to tender his stock in a takeover bid.
The company is much better off financially and fiscally than it was when Canfor attempted a $19
bid four or five years ago. Canfor will probably partner with somebody, but a friendly merger I
don't believe is in the offing because Canfor doesn't have enough to offer Slocan because Slocan is
a lower-cost producer.
In the end, Slocan investors won't want to merge with Canfor. Canfor wants to merge with Slocan
because it is fibre self-sufficient and Canfor isn't. One is in control of the cost and their own
destiny, and the other isn't.
StockHouse: To what degree do US housing starts dictate forest product revenues?
Sam Magid: On the solid wood side, I'd say that approximately 65% of all demand for North American structure wood comes from US housing starts. Almost 80% of the price move in
OSB comes from US housing starts. OSB is strictly used in structural housing for new homes.
StockHouse: How will International Paper turn their last quarter lower earnings around?
Sam Magid: They hope that pulp prices are going to rise. They have merged with Union Camp [UCC], so they hope that costs are going to
fall with the merger. Really, International Paper [IP] is a dinosaur out of this whole sector because of the fact that they are in the wrong
commodity. They are in pulp and eventually pulp should be produced out of the Asian countries.
StockHouse: Of all the sector players that you are looking at, who do you think is going to blow away earnings next quarter?
Sam Magid: On the solid wood side it will be Slocan, Nexfor and West Fraser [T.WFT].
StockHouse: Thank you for your time, Mr. Magid |
