The BW Group owns the Suwannee sawmill in Cross City, Fla., and the Caddo River sawmill in Glenwood, Ark., which both primarily produce Southern Yellow Pine (SYP) softwood lumber and specialty products like decking. The Suwannee Mill and Caddo River Mill each have an annual dimension lumber capacity of approximately 185 million board feet on a two-shift basis.
As a result of this transaction, Conifex's annual lumber production capacity will increase by approximately 50 per cent to 1.1 billion board feet while its dimension lumber platform in the Southern U.S. will increase by 200 per cent to approximately 550 million board feet, representing approximately 50 per cent of the company's total pro forma lumber capacity.
Further, the acquired mills add premium priced SYP decking products to our current product mix, along with long established customer relationships in Florida and the Southern and Eastern U.S.
Both the Suwannee Mill and Caddo River Mill have had significant modernization projects completed in recent years. Most recently, a US$12 million modernization and optimization project was completed at the Suwannee Mill in 2017 and approximately US$14 million of capital expenditures were completed at the Caddo River Mill in connection with its re-start in May 2017.
In the first quarter of 2018 and for the full year in 2017, the BW Group generated Adjusted EBITDA of US$5.5 million and US$14.0 million, respectively, on sales of US$32.6 million and US$101.1 million, respectively.
Conifex estimates that integrating the acquired mills with its existing operations will generate over US$5 million in synergies through procurement opportunities, cost benefits, customer service rationalization, and providing business support services to an expanded number of mill locations. Conifex believes these annual run-rate benefits will be achieved within 12 months of closing the transaction.
In a statement from Conifex president and chief executive officer Ken Shields, he said:
"This is a highly strategic and transformative transaction for Conifex. It brings together two successful growth oriented companies to create a leading SYP lumber producer.
The Suwannee and Caddo River mills significantly increase our presence in the U.S. South, which we have identified as an important strategic area with proximity to high-quality and abundant fibre supply in addition to some of North America's fastest growing population centres and housing markets.
The Suwannee and Caddo River mills' culture and operations provide an ideal fit to increase our profitability and provide a launching pad to scale our business and compete with the best sawmills in North America.
We are also well positioned to realize upon the ramp up in production at the Caddo River mill and our El Dorado mill during the balance of 2018 and next year.
The transaction positions us to capitalize on the continued recovery in the U.S. and, along with our current operations create a platform for growth and enhance returns for our stakeholders.
We look forward to welcoming all Suwannee and Caddo River employees to the Conifex family."
"After many years of investing in the sawmill industry in the Southeastern U.S., we are excited to join forces with the Conifex team, whose values and commitment to their employees, communities, and customers parallel our own," a partner of Blue Wolf Charles P. Miller said. "As a result of this transaction we will continue to be significant investors in Conifex and we firmly believe that the scale of our combined companies will make all of the mills in the system stronger, more competitive, and better able to continue a culture of investment, expansion, and continuous improvement."
Conifex's consideration for its acquisition of the BW Group consists of:
- US$150.0 million plus the net working capital of the BW Group at closing in cash;
- the value of US$50.0 million through the issuance of common shares of Conifex with an issue price of $6.50 per share (being the 20-day volume weighted average trading price), provided, however, that to the extent that such Common Shares issued to the Vendors would exceed 19.9 per cent of the issued and outstanding Common Shares, the excess amount shall be satisfied in cash; and
- 3.5 million warrants to purchase Common Shares for a period of five years after closing of the acquisition, at an exercise price of $8.78 per share.
In addition, Conifex and BW SLC have entered into customary governance provisions including standstill and nomination arrangements and a non-competition agreement.
As part of the transaction, Charles P. Miller and George R. Judd shall be appointed to Conifex's Board of Directors on the closing of the transaction.
Miller is a partner at Blue Wolf and Judd is a strategic advisor to Blue Wolf and a member of BW SLC’s board. Previously, Judd served as the chief executive officer of PrimeSource Building Products, Inc., one of the largest purveyors of fasteners and distributors of building materials. He also served as the chief executive officer of Snappy Air Distribution Products, Inc. and as president and chief executive officer of BlueLinx Corporation, a large distributor of building products.
The completion of the transaction is subject to the satisfaction of customary closing conditions, including regulatory consents and approvals and financing. In connection therewith, Conifex has received from a U.S. bank a commitment for a new credit facility in the amount of US$220 million with a term of five years to partially finance the acquisition, replace its current facility and for general working capital. Conifex is also reviewing other supplemental funding for the acquisition.
Pursuant to the requirements of the Toronto Stock Exchange, the issuance of shares and warrants are subject to Conifex obtaining shareholder approval, and Conifex will convene an annual and special meeting of shareholders to, among other things, consider and approve the transaction.
The transaction is expected to be closed at or around the end of the second quarter of 2018.