Canada's Paper Excellence announces deal to buy Domtar Corp. in US$3B deal

Domtar

Paper Excellence is expanding into the U.S. with a deal to buy Domtar Corp. in an agreement with an enterprise value of about US$3 billion.

The Richmond, B.C.-based company will pay US$55 per Domtar share in cash, a 37 per cent premium from May 3 when a media report disclosed a possible transaction.

“This marks a major step in our global strategy of identifying well-positioned assets and positioning them for growth,” said Joe Ragan, Paper Excellence's global chief financial officer.

“We are enthusiastic about entering the American market as we continually improve Paper Excellence's ability to serve its expanding blue-chip customer base.”

Paper Excellence, a global diversified manufacturer of pulp and specialty, printing, writing and packaging papers, operates seven mills in Canada producing and shipping more than 2.8 million tonnes of product annually with a workforce of more than 2,800.

Montreal and South Carolina-based Domtar is an integrated manufacturer and marketer of uncoated freesheet paper in North America and one of the largest manufacturers of pulp in the world. It has 13 pulp and paper mills and 10 manufacturing and converting facilities in Canada and the United States.

Ragan said Paper Excellence, which acquired Catalyst Paper Corp. in 2019, will invest in Domtar's assets for long-term growth.

The companies say Paper Excellence intends to continue the operations of Domtar as a stand-alone entity. They say it will be led by its management team and Paper Excellence plans to keep its corporate and production locations.

Domtar CEO John Williams said the Paper Excellence transaction allows its shareholders to realize cash value at a significant premium.

“This transaction validates our long-term strategic plan for our leading paper and pulp businesses, and for our continued expansion into packaging,” he said in the news release.

Domtar's board unanimously approved the agreement which is expected to close in the second half of the year, subject to shareholder and regulatory approvals.

Shares in Domtar climbed to a two-year high by gaining C$9.68 or 16.9 per cent to C$66.96 on the Toronto Stock Exchange Tuesday.

The transaction follows West Fraser Timber Co. Ltd.'s $4-billion purchase of Norbord Inc, which closed in February.

Analyst Paul Quinn of RBC Capital Markets said the deal is not surprising given recent reports.

“While the valuation is a bit below comparable transactions, we expect there to be fewer synergies in this deal given that Domtar will continue to operate on a stand-alone basis and therefore view the price as fair,” he wrote in a report.

A key question for Quinn is what does the new owner do about Domtar's plans to convert up to four paper machines to containerboard.

“While we think that it is likely too late to turn back on the Kingsport conversion, the conversions at Ashdown, Marlboro, and Hawesville have not been started.”