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Rayonier Advanced Materials Reiterates Commitment to Acquire Tembec on Agreed Terms
Transaction provides compelling value to
On
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Significant premium – The arrangement consideration represents
a significant premium to Tembec’s historical share price. The headline
offer price of
C$4.05 and the current implied value ofC$4.20 perTembec share represent a 37% and 42% premium, respectively, to Tembec’s unaffected share price onMay 24, 2017 , and a 76% and 83% premium, respectively, to Tembec’s VWAP for the 12 months pre-announcement. -
Certainty of value – The cash component of the arrangement
consideration represents approximately 63% of the current overall
value of the arrangement consideration and provides a substantial and
immediate value realization for
Tembec shareholders. -
Upside participation – With approximately 37% of the
consideration in the form of Rayonier Advanced Material stock,
Tembec shareholders have the opportunity to capture enhanced long-term value prospects through ongoing participation in a larger, more diverse company. -
Enhanced liquidity – In the year prior to the announcement,
Tembec common shares traded an average of$0.13 million per day. In contrast,Rayonier Advanced Materials shares traded an average of$7.8 million per day in the same period, which means that the Company’s shares are greater than 60 times more liquid thanTembec shares. As part of a significantly larger company,Tembec shareholders receivingRayonier Advanced Materials common stock will benefit from this significantly increased market liquidity. -
Full price discovery – Tembec’s Board of Directors and
management, with the assistance of their financial and legal advisors,
reviewed strategic alternatives for nearly two years, including the
continuation of
Tembec's existing stand-alone business plan and the divestiture of core and non-core segments, before recognizing that a transaction withRayonier Advanced Materials was the best option forTembec and its shareholders. The interest of Tembec’s Board of Directors and management are fully aligned to that of shareholders, and Tembec’s Board received two fairness opinions to the effect that the transaction is fair. -
Optionality on superior offers –
Tembec also retained the ability to engage in discussions with respect to an unsolicited competing offer that could reasonably be expected to be more favorable toTembec shareholders, from a financial point of view, than the transaction with the Company. In the nearly two months since the arrangement agreement was announced, no third party has made such an offer.
Tembec’s Board of Directors unanimously approved the arrangement
agreement and recommended that its shareholders vote “FOR” the
arrangement. Institutional Shareholder Services (“ISS”), an independent
proxy voting and corporate governance advisory firm, also recommended
that
The Company believes that the agreed-upon consideration reflects the significant value that can be created through a combination between the two companies, but also the meaningful risks associated with Tembec’s business segments, including:
-
Commodity businesses – With the significant majority of
Tembec’s revenue in commodity markets, including High-Yield Pulp,
Newsprint and Forest Products, the agreed-upon price reflects the
volatile nature of these businesses as they are currently operating
above historical averages. In High-Yield pulp, there is 1.8 million
ton expansion of the competitive BEK pulp coming on line in 2017, with
other announced capacity expansions in
Asia andSouth America to follow in 2018. Newsprint demand continues to decline by over 8% per year. Forest Products is driven by US and Canadian housing. These markets face threats from rising interest rates and trade disputes. -
Softwood Lumber tariffs –
Tembec has a significant exposure in the developing trade tension betweenCanada andthe United States with historical lumber export volumes in excess of 50%. Recently, approximately 27% tariffs were announced on lumber exported fromCanada tothe United States and the outlook of the negotiations is in flux given the change in administrations at each government. While prior tariff disputes were eventually settled after numerous years, there can be no assurances of a similar outcome. -
Currency – Nearly 50% of Tembec’s Canadian sales are
denominated in US dollar with the majority of their production inputs
in Canadian dollar. A stronger Canadian dollar can significantly
affect Tembec’s cost position compared to foreign competitors. At the
time of announcement, the Canadian dollar was trading below historic
averages and, as expected, is reverting to more normal levels.
One Canadian dollar was worth around0.74 US dollars at the time of announcement. Since then, the Canadian dollar has appreciated by over 6%. Based on Tembec’s disclosure, a 1% change in Canadian dollar impacts EBITDA byC$7 million ; resulting in a potential reduction in EBITDA ofC$43 million . -
Expense and risk to synergies – While the Company expects to
achieve upwards of
$50 million of synergies over the three years following the completion of the arrangement, it will also require considerable time, money and resources along with increased execution risk to capture these synergies. These synergies are a direct result of the combination and will only be achieved with careful investment and management.
Given the lengthy exploration of strategic alternatives that
About Rayonier Advanced Materials
About
Forward-Looking Statements
This document contains statements that are forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. All
forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
those projected. Such risks and uncertainties include, but are not
limited to: the timing of the closing of the transaction; whether a
transaction will be consummated at all and the ability to obtain
required regulatory approvals and satisfy the other conditions to
closing the transaction; the expected benefits of the transaction and
whether such benefits will be achieved on a timely basis or at all; our
ability to successfully integrate acquired businesses; prolonged
weakness in general economic conditions; unfavorable weather conditions
or natural disasters; our reliance on government permits or approvals;
risks related to federal, state, local and foreign government laws,
rules and regulations; risks related to our reliance on information
technology; manufacturing issues that may arise; adverse consequences of
current or future legal claims; our ability to hire and retain a
sufficient seasonal workforce; risks related to our workforce, including
increased labor costs; loss of key personnel; fluctuations in foreign
currency exchange rates; impairments or write downs of our assets;
changes in accounting estimates and judgments, accounting principles,
policies or guidelines; a materially adverse change in our financial
condition; and other risks detailed in Rayonier Advanced Materials’
filings with the
Additional Information
Further information regarding the transaction is contained in the
management information circular in connection with the special meeting
of the
APPENDIX A
Rayonier Advanced Materials Response to Oaktree’s False and Misleading Assertions
Oaktree Misleading Statement: “Oaktree recognizes the
strategic merit of the combination, yet
The Facts:
-
Rayonier Advanced Materials believes thatTembec shareholders are receiving full and fair consideration for theirTembec shares and an appropriate share of the incremental value created by the combination -
The purchase price represents a significant premium to Tembec’s
historical trading levels
-
Headline offer price of
C$4.05 perTembec share represents a premium of:-
37% to Tembec’s unaffected share price of
C$2.95 onMay 24, 2017 -
76% to Tembec’s VWAP for the 12 months pre-announcement of
C$2.30
-
37% to Tembec’s unaffected share price of
-
Current implied value of
C$4.20 perTembec share represents a premium of:-
42% to Tembec’s unaffected share price of
C$2.95 onMay 24, 2017 -
83% to Tembec’s VWAP for the 12 months pre-announcement of
C$2.30
-
42% to Tembec’s unaffected share price of
-
Headline offer price of
-
Rayonier Advanced Materials’ perspective is also supported by:
-
The market:
-
Rayonier Advanced Materials’ stock price is up 15% since the
day prior to announcement, while
Tembec stock is up 42% or nearly 3x the appreciation realized byRayonier Advanced Materials shareholder
-
Rayonier Advanced Materials’ stock price is up 15% since the
day prior to announcement, while
-
The research community:
-
BofA Merrill Lynch: “We believe RYAM is paying a
fair price for
Tembec considering its different product lines (i.e. challenges in newsprint, potential headwinds in lumber from the US softwood lumber trade case), the cash cost position of its mills and other risks associated with the business. Additionally, we note that RYAM is paying a sizable premium….and could bring significant value toTembec through its expertise in the cellulose specialties business, potential for an improved capital structure and more steady cash flow generation to invest in the business, among others.” -
TD Securities : The purchase price represents “a modest discount to the global pulp sector average…arguably reflecting Tembec’s small scale and inconsistent performance from the Company’s sawmills / BCTMP pulp assets…we believe that RYAM’s bid is fair.”
-
BofA Merrill Lynch: “We believe RYAM is paying a
fair price for
-
Independent shareholder advisors:
- Institutional Shareholder Services (ISS): “The proposed premium offer consideration provides shareholders with flexibility to participate in the growth opportunities associated with the combined business of increased size, scale and liquidity and/or to receive the consideration in the form of cash that provides immediate liquidity (subject to proration limits). In light of the premium offer consideration, the favorable market reaction and the sound strategic rationale, shareholder approval of this arrangement is warranted."
-
The market:
-
The board of directors of
Tembec :-
“The board of directors of
Tembec (the "Board") has unanimously determined that the Arrangement is in the best interests ofTembec . The Board has unanimously approved the Arrangement and recommends (without any abstention) thatTembec shareholders vote FOR the Arrangement Resolution.”
-
“The board of directors of
Oaktree Misleading Statement: “Rayonier has a variety of levers available to it to improve its offer for Tembec”
The Facts:
- Rayonier Advanced Materials’ approach to M&A focuses on intrinsic value and long-term shareholder returns rather than premiums, multiples or near-term share price movements
-
This analysis:
- Is based on the Company’s risk-adjusted outlook for the business, inclusive of combination synergies and other opportunities, relative to the cost of capital
-
Anchors the indifference point for the Company with respect to a
transaction involving
Tembec
-
Through extensive negotiations with
Tembec ,Rayonier Advanced Materials has already been pushed to the limits of its willingness to pay-
Mid-February 2017 : OfferedC$3.15 perTembec share -
February 27, 2017 : Increased its offer toC$3.70 perTembec share -
March 14, 2017 : Increased its offer toC$4.00 perTembec share -
May 19, 2017 : Increased its offer toC$4.05 perTembec share, representing an increase of 29% relative to its initial offer
-
Oaktree Misleading Statement: “Tembec could generate more shareholder value as a stand-alone entity.”
The Facts:
-
Tembec’s stand-alone business is subject to significant risks and
challenges, including:
- Exposure to commodity-oriented segments (e.g. newsprint, high yield pulp, lumber) with challenging cyclical and secular fundamentals
-
Cyclicality in paper and a paperboard pricing, where a
$50 per tonne reduction in pricing would decrease EBITDA by approximatelyC$18 million -
Foreign exchange exposure, where a 10% strengthening of the CAD /
USD would decrease EBITDA by
~C$70 million (note that the CAD has strengthened by 6.1% since announcement, implying a potential~C$43 million impact on EBITDA) - The current tariffs on softwood lumber imports into the US and the terms of a new Softwood Lumber Agreement could materially impact EBITDA.
- The need for significant capital investment in Tembec’s sawmills, as the mills have seen significantly underinvestment over the last ten years
-
The transaction with
Rayonier Advanced Materials arose out of a comprehensive and rigorous process conducted byTembec over a period of nearly two years to seek alternative transactions involving a sale of the whole or any part of the Company-
The board of directors of
Tembec considered, among other alternatives, “the continuation ofTembec's existing stand-alone business plan and a strategic repositioning ofTembec , cost reduction plans, potential asset combinations ofTembec's forest products, newsprint and/or specialty pulp businesses with other industry players, the possible divestiture of certain ofTembec's core and non-core business segments” - Pursued a sale of the forest products business
- Pursued a sale of the core specialty pulp facilities in Temiscaming and Tartas, including contacting eleven parties and providing a confidential information memorandum to eight interested parties
-
The board of directors of
-
Over the two-year period that the board of directors of
Tembec pursued the above alternatives:- Tembec’s financial results fluctuated significantly
-
Tembec’s stock price never closed higher than
C$3.02 per share with an average closing price of$C1.54 during the period -
Shareholders had extremely limited liquidity, with average daily
trading volume in
Tembec stock of only ~56,000 shares or~C$86,000 of value
-
Considering all risks, opportunities and alternatives, the board of
directors of
Tembec concluded that a transaction withRayonier Advanced Materials offered the best opportunity to generate shareholder value
Oaktree Misleading Statement: “Stand-alone RYAM, on the other hand, has a significantly more difficult outlook.”
The Facts:
-
While we continue to see strong strategic merit in a combination with
Tembec , stand-aloneRayonier Advanced Materials has a broad range of alternatives to create shareholder value, starting with the Company’s Four Pillar strategy:- Cost Transformation to rapidly re-shape the business
- Market Optimization to maximize earnings from optimum product and market mix
- A deep pipeline of New Products and customer-valued service offerings
- An established Acquisition program to create a diversified and faster growing business through complementary combinations
-
Importantly, the Company has significant financial flexibility to
pursue alternatives:
-
$345 million of available cash and$574 million of total liquidity, including$229 million available under the revolving credit facility as ofMarch 25, 2017 -
Conservative leverage of 2x Net Debt / LTM EBITDA as of
March 25, 2017
-
-
The research community also acknowledges the range of alternatives:
- BofA Merrill Lynch: “While RYAM could adjust terms of this transaction, we also believe other acquisitions may make sense if this deal were to fall through as RYAM has been actively pursuing M&A as part of its long-term strategy”
Oaktree Misleading Statement: “Tembec Has Created Confusion in the Marketplace Regarding Shareholder Support for the Transaction”
The Facts:
-
Rayonier Advanced Materials was encouraged by the strong support ofFairfax Financial for the transaction
- As one of Tembec’s largest and most sophisticated shareholders, their support was a strong endorsement of the superior value offered by RYAM
-
Oaktree doubled its stake in
Tembec after the announcement of the acquisition apparently to leverage an opportunity to extract incremental value not warranted by economic fundamentals by threatening the completion of the transaction.
View source version on businesswire.com: http://www.businesswire.com/news/home/20170717005671/en/
Source:
Rayonier Advanced Materials
Media
Ryan
Houck, 904-357-9134
media@rayonieram.com
or
Investors
Mickey
Walsh, 904-357-9162
mickey.walsh@rayonieram.com
or
Tembec
Media
Linda
Coates, 416-775-2819
linda.coates@tembec.com
or
Investors
Michel
Dumas, 819-627-4268
michel.dumas@tembec.com