Candice Cooke, United States - July 2021
West Fraser announces a c$1.0 billion substantial issuer bid through modified Dutch auction
High demand for lumber in both the U.S. and Canada, coupled with a shortage of supply, has sent lumber prices skyrocketing and resulted in big earnings for producers like West Fraser.
West Fraser Timber Co. (TSX,NYSE:WFG) is a diversified wood products company. The producer has more than 60 facilities in Canada, the United States, the United Kingdom, and Europe. They produce wood products from responsibly sourced and sustainably managed forest resources.
West Fraser has grown substantially since last year, following a $4 billion acquisition of Norbord Inc. which was completed in February this year. The acquisition, coupled with high lumber prices, have roughly doubled West Fraser’s earnings and cash compared to 2020.
While having a good cash balance is a positive sign, investors may read excess cash on balance sheets as an indication the company is not reinvesting enough funds. Companies like West Fraser which have grown substantially in recent years may find themselves in a position where there simply aren’t many good companies or assets available to buy, resulting in the occurrence of these Offer types.
The company will use a "modified Dutch auction" in which it will buy shares from shareholders at a premium to current market prices. The auction will run from July 12 to August 17, unless extended or withdrawn, the company announced in its news release. West Fraser states that up to 10% of the total issued and outstanding shares are up for auction. Shareholders are under no obligation to participate.