VANCOUVER — Ainsworth Lumber Co. Ltd., a firm with a long history in British Columbia, is being bought out in a deal worth $1.1 billion US by American forest-products giant Louisiana Pacific Corp, which will solidify its dominance as North America’s biggest producer of oriented strand board.
For Louisiana Pacific, CEO Curt Stevens said on a conference call that the acquisition is a strategic move aimed both at capturing a bigger share of the ongoing recovery in the U.S. housing construction market and gaining exposure to markets in Asia with Ainsworth’s position in Japan and inroads into China.
Stevens noted that 13 per cent of Ainsworth’s 2012 sales went to Asia during a stage of the business cycle he described as “a pretty poor market,” and as the region continues to grow, sales should increase.
“(Louisiana Pacific) has operations in Canada, the U.S. and South America, and having a presence in Asia really does give us more global reach, which allows for geographic diversification when local markets aren’t as active,” Stevens said.
The deal also gives Nashville-based Louisiana Pacific a strategic advantage in a market where there is enough production capacity to overwhelm current demand, according to industry analyst David Elstone.
“With LP and Ainsworth combined, it will be by far the dominant player out there,” said Elstone, a senior analyst at ERA Forest Products Research, which should give it a bit more control of supply conditions.
Louisiana Pacific will pay Ainsworth shareholders $3.76 per share in cash and stock, which will total $906 million, with the balance of the purchase price taken up through the assumption of Ainsworth’s debt in a deal that is expected to close by the end of the year.
Ainsworth’s board of directors has voted unanimously to accept the deal and its majority shareholder, Brookfield Asset Management, which owns
54 per cent of the company, has signed an agreement to vote in favour of the transaction, which is subject to the approval of federal regulators.
And for Brookfield, the deal marks a completion of Ainsworth’s turnaround following a corporate restructuring in 2008 that saw the company’s founding family squeezed out and ownership revert to its bondholders, including bond funds that are now part of Brookfield.
Funds owned by Brookfield controlled about 29 per cent of Ainsworth following the restructuring and acquired a further 24.5 per cent of the company through a $56-million equity financing in 2010.
Family patriarch David Ainsworth started the company in 1950 in 100 Mile House with one portable sawmill. After growing through the decades, the company went public in 1993, built its first oriented-strand-board plant in the Interior town, and embarked on a 15-year bid to expand across Canada and into the U.S. that ended in bust with the collapse of U.S. housing construction.
“It is no secret that Ainsworth has faced some challenges in the past,” Ainsworth CEO Jim Lake said, crediting the work of the company’s staff and board of directors, and perseverance of Brookfield with completing the turnaround.
“We’ve succeeded in securing a very promising future for Ainsworth and its people with this transaction,” he said.
Louisiana Pacific is taking over Ainsworth’s four mills, which are in 100 Mile House, Grand Prairie and High Level in Alberta and Barwick, Ontario, which together employ 710 workers, which Stevens described as “core assets” to Louisiana Pacific’s strategy.
Stevens said LP will also continue with Ainsworth’s expansion plans at the High Level mill, but only “in line with current demand forces,” and will execute a plan to add a second line at the Grand Prairie mill “as and when market conditions permit.”
Stevens added that he plans to maintain Ainsworth’s research and development programs through Alberta Innovation and Technology Futures and the University of B.C., which will help LP diversify into more industrial construction products.
“If you look at the North American market, I think we are in pretty good shape” with this deal, Stevens said on a conference call. Ainsworth has two mills set up for products meeting Japanese specifications, which will help boost sales there, he said.
For Brookfield, Elstone said it is the third major exit that the investment company has made from forestry-related companies this year.
“They’re capturing good opportunities to sell,” Elstone said. In regular trading, Ainsworth shares edged up five cents to close at $2.94 a share on the Toronto Stock Exchange.