VANCOUVER, BC, Oct. 12, 2021 /CNW/ - West Fraser Timber Co. Ltd.
("West Fraser" or the "Company") (TSX and NYSE: WFG)
announced today that it has entered into an agreement to acquire
the Angelina Forest Products lumber mill located in Lufkin, Texas for approximately $300 million, subject to certain post-closing
adjustments. The transaction is anticipated to close following
successful completion of U.S. regulatory reviews and satisfaction
of customary conditions. Management will provide an update and
further details about the transaction on West Fraser's third
quarter earnings call on October 28,
2021. All dollar amounts in this news release are expressed
in U.S. dollars unless noted otherwise.
The new turn-key facility, which produces southern yellow pine
("SYP") lumber products, began construction in 2018, commenced
operations in late 2019 and is expected to progress toward full
production capacity of approximately 305 million board feet over
the next three to four years. The transaction includes
approximately $4 million of target
working capital and approximately $24
million of supplemental tax attributes that are expected to
result in a direct cash flow benefit to West Fraser.
Strategic Rationale and Synergies
The acquisition is another important step in West Fraser's
continued expansion of its U.S. lumber operations. The new,
highly efficient facility is expected to be a top quartile mill
that will integrate with and support our existing East Texas lumber and OSB business.
Anticipated to be among the lowest cost operations in the
Company's lumber mill portfolio, the Lufkin mill is strategically located near
low-cost and abundant fibre as well as large and growing
end-markets and its additional lumber production will allow West
Fraser to better serve the Company's growing customer base in
Texas and the southern U.S.
Upon completion of this transaction, West Fraser will have
combined Canadian and U.S. lumber production capacity of
approximately 7.0 billion board feet, with U.S. capacity of SYP
lumber representing approximately 50% of the Company's
capacity.
"We look forward to welcoming the Lufkin mill employees to West Fraser.
The management team at Angelina Forest Products has done a
commendable job developing the Lufkin team and operations, and we believe
this modern, high-margin facility will enhance our existing U.S.
platform of lumber mills and help us to better meet the growing
demand for our lumber products in Texas and the U.S. South," said West Fraser's
President and CEO, Ray Ferris. "With this acquisition,
we will be able to quickly capitalize on a fully-invested and
high-quality manufacturing facility. This includes a trained
labour force and the local community and logistics infrastructure
to support the mill's supply chain, distribution and outlet for
residuals. Further, we are able to immediately reap the cash
flow benefits of our investment while significantly reducing the
associated risks of greenfield construction, execution and
start-up."
West Fraser intends to finance the acquisition with cash on
hand. Annual synergies of approximately $13 million are anticipated to be achieved within
two years with minimal capital requirements. These synergies
are expected to be realized through continued capacity utilization
improvement, implementation of best practices and the coordinated
transportation, logistics and procurement benefits derived from
West Fraser's distribution scale and existing production facilities
in the region.
It is anticipated that after the cash tax benefits described
above, the post-synergy mid-cycle Adjusted EBITDA multiple at full
production will be approximately 6.4x and the transaction is
expected to generate an internal rate of return ("IRR") of
approximately 13%. Based on recent industry announcements and
West Fraser's latest internal analysis, the cost to construct a
greenfield lumber mill of the scale and quality of the Lufkin mill plus working capital investment
and the foregone cash flows anticipated during the construction and
ramp up phases are expected to exceed the purchase price for this
top quartile facility.
The Company
West Fraser is a diversified wood products company with more
than 60 facilities in Canada,
the United States, the
United Kingdom, and Europe. From responsibly sourced and
sustainably managed forest resources, the Company produces lumber,
engineered wood products (OSB, LVL, MDF, plywood, and
particleboard), pulp, newsprint, wood chips, other residuals and
renewable energy. West Fraser's products are used in home
construction, repair and remodelling, industrial applications,
papers, tissue, and box materials.
Forward-Looking Statements
This news release contains forward-looking information or
forward-looking statements (collectively, "forward-looking
statements") within the meaning of applicable securities laws,
including the expected closing date of the transaction, the
projected ramp rate of the mill, its cost position, estimated
annual synergies, estimated tax benefits, the internal rates of
return generated and anticipated cash flows. Any such
forward-looking statements are based on information currently
available to us and are based on assumptions and analyses made by
us in light of our experience and our perception of historical
trends and current conditions. Readers should also refer to
the risk factors set forth in the Company's annual information form
and management's discussion and analysis for the year ended
December 31, 2020, each dated
February 11, 2021, available at SEDAR
(www.sedar.com) and EDGAR (www.sec.gov/edgar.shtml). There
can be no assurance that the plans, intentions or expectations upon
which forward-looking statements are based will be realized.
Actual results may differ, and the difference may be material
and adverse to the Company and its shareholders.
Non-IFRS Measures
In this news release, reference is made to Adjusted EBITDA,
(collectively "these Non-IFRS measures"). We believe that, in
addition to earnings, these Non–IFRS measures are useful
performance indicators for investors with regard to operating and
financial performance. Adjusted EBITDA is also used to
evaluate the operating and financial performance of our operating
segments, generate future operating plans, and make strategic
decisions. These Non-IFRS measures are not generally accepted
financial measures under IFRS and do not have standardized meanings
prescribed by IFRS. Investors are cautioned that none of
these Non-IFRS measures should be considered as an alternative to
earnings, EPS, or cash flow, as determined in accordance with
IFRS. As there is no standardized method of calculating any
of these Non-IFRS measures, our method of calculating each of them
may differ from the methods used by other entities and,
accordingly, our use of any of these Non-IFRS measures may not be
directly comparable to similarly titled measures used by other
entities. Accordingly, these Non-IFRS measures are intended
to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared
in accordance with IFRS. The reconciliation of the Non-IFRS
measures used and presented by the Company to the most directly
comparable IFRS measures is set out in our Q2 2021 MD&A.
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SOURCE West Fraser Timber Co. Ltd.