INTERFOR CORPORATION (“Interfor” or the “Company”) (TSX: IFP) announced last week that it has reached an agreement with Georgia-Pacific Wood Products LLC and GP Wood Products LLC (collectively “Georgia-Pacific”) to acquire four of its sawmill operations located in Bay Springs, MS, Fayette, AL, DeQuincy, LA and Philomath, OR (collectively the “Sawmill Operations”). The total purchase price of US$375 MM, which includes working capital, will be funded entirely from cash on hand.
The Sawmill Operations are highly complementary to Interfor’s existing platforms in the US South and the US Northwest, and the acquisition will support accelerated growth and enhance the Company’s position to benefit from robust market conditions. The acquisition will be immediately accretive to Interfor’s earnings and is expected to provide attractive returns in both the near-term and over the long-term.
“This acquisition enhances Interfor’s growth-focused strategy as a pure-play lumber producer, and provides significant economies of scale given the complementary geographic fit with our existing US operations” said Ian Fillinger, President and Chief Executive Officer. “We’re excited to acquire these high-quality assets as part of our balanced approach to capital allocation to drive shareholder value.”
The Sawmill Operations have a combined annual lumber production capacity of 720 million board feet. The Bay Springs, Fayette and Philomath sawmills are currently operating on a full-shifting basis. The DeQuincy sawmill, which was idled in May 2020 during the COVID-19 pandemic, has an annual capacity of 200 million board feet. Interfor is currently evaluating its strategy and options for the site, including re-start plans.
On a pro-forma basis, Interfor’s total annual lumber production capacity will increase to 3.9 billion board feet, of which 3.0 billion board feet or 77% will be US-based and not subject to softwood lumber duties. Interfor’s US South production capacity will grow by 500 million board feet, or 29%, to 2.2 billion, while production capacity in the US Northwest will grow by 220 million, or 40%, to 770 million board feet. Following the transaction, 57% of Interfor’s production capacity will be in the US South, 20% will be in the US Northwest and the remaining 23% will be in British Columbia.
The Sawmill Operations, excluding the DeQuincy sawmill, generated US$53 million of EBITDA1 in the first quarter of 2021, reflecting an EBITDA1 margin of US$508 or $643 per thousand board feet. This compares favorably with Interfor’s EBITDA margin of $589 per thousand board feet for the same period.
Following the completion of this transaction Interfor will continue to have significant financial flexibility to consider additional value-creating capital deployment options. As of April 30, 2021 Interfor was in a net cash position of approximately $380 million. Proforma this acquisition and the special dividend announced on May 12, 2021, Interfor’s Net Debt to Invested Capital ratio as of April 30, 2021 would increase to 13%. Similarly, proforma liquidity as of April 30, 2021 would be approximately $500 million, before consideration of significant additional borrowing capacity available under existing credit limits and continued strong near-term operating cash flows.
The completion of the acquisition is subject to customary conditions and regulatory approvals for a transaction of this kind and is expected to close in the third quarter of 2021.
ABOUT INTERFOR
Interfor is a growth-oriented forest products company with operations in Canada and the United States. The Company has annual production capacity of approximately 3.2 billion board feet and offers a diverse line of lumber products to customers around the world. For more information about Interfor, visit our website.
