Rayonier to Acquire Canadian firm Tembec Inc.

Staff Report From Savannah CEO

Tuesday, May 30th, 2017

Rayonier Advanced Materials Inc. and Tembec Inc. announced a definitive agreement under which Rayonier Advanced Materials will acquire Tembec, providing the combined company with leading and complementary positions in key high purity cellulose end-uses and diversified earning streams from packaging, paper, high-yield pulp and forest products businesses. With its expanded geographic reach, enhanced R&D capabilities and broader, more flexible asset base, the combined company will offer customers exceptional product breadth across the spectrum of high purity cellulose products and create additional growth opportunities in packaging and forest products.

The transaction received the unanimous approval of the Boards of Directors of both companies. 

Tembec shareholders will have the right to elect to receive either (i) C$4.05 in cash or (ii) 0.2302 of a share of Rayonier Advanced Materials common stock, for each Tembec common share. These elections are subject to proration to ensure that no more than 63% of the aggregate Tembec shares shall receive the cash consideration and no more than 37% will receive the stock consideration.

The purchase price of approximately US$807 million, including the assumption of US$487 million of debt net of cash, represents a multiple of 4.6 times LTM pro forma EBITDA after expected synergies or 6.3 times before synergies. For Tembec shareholders, the purchase price per share represents a 37% premium to its closing price on May 24, 2017.

Maintaining Tembec's operations and jobs in Canada and France

The Company expects to retain Canadian headquarters in Montreal, Québec and a presence in Ontario, and continue all Tembec operations. The Company will also proceed with Tembec's recently announced four-year investment plan for its Québec facilities and make additional investments in other key facilities and operations to further enhance the Company's growth potential and competitiveness.

Transaction serves the best interests of both companies

For Tembec, the transaction will:

  • Establish Tembec as part of a larger, more competitive organization with the resources to invest in its growth and a commitment to continue all operations and maintain a strong presence in Québec, Ontario and France.

  • Create compelling value for shareholders, including an attractive premium to market with immediate cash and the ability to participate in the combined company's future growth, and significant liquidity through share ownership in a broadly traded public company.

For Rayonier Advanced Materials, the combination will:

  • Position Rayonier Advanced Materials as a stronger, more balanced company with a further diversified customer and operational base.

  • Be immediately accretive to earnings and shareholder value.

  • Benefit from enhanced economies of scale, and create projected combined cost synergies of US$50 million.

  • Establish a global manufacturing footprint to enhance its competitiveness in international markets, and expand its pipeline of innovative products through R&D facilities in the U.S. and France.

Stronger, more diversified global leader

"This transaction advances our growth objective to pursue strategic acquisitions where we can leverage our core competencies to provide significant long-term shareholder return," said Paul Boynton, Chairman, President and Chief Executive Officer of Rayonier Advanced Materials. "By joining forces, we are diversifying our product offering in high purity cellulose and expanding into the adjacent packaging and forest products markets with significant scale. With pro forma revenue of US$2 billion, the combined company will be poised to compete effectively in any market, benefit from greater product and geographic diversity, and provide an attractive value proposition for our shareholders."

Mr. Boynton added, "Following the transaction, our solid capital structure will enable us to make high-return investments to support the growth of Tembec's attractive businesses and product development capabilities to better serve customers. We look forward to working with Tembec's exceptional team, unions and other stakeholders to realize the abundant opportunities ahead."

An ideal partner, committed to Tembec's people and operations

James Lopez, President and Chief Executive Officer of Tembec, said, "Rayonier Advanced Materials is the ideal partner for us, given the complementary nature of our products, expertise, and resources.  They are committed to our operations and employees in Canada and France and—above all—to the values we share. This combination will enable us to sustainably grow our business for the benefit of our customers, employees and communities.  We are pleased that our shareholders will be able to participate in the company's future success through an ongoing equity ownership." 


Rayonier Advanced Materials intends to finance the cash portion of the transaction with a combination of cash on hand and committed bank financing. 

Structure, Timing and Approvals of Transaction

The transaction will be carried out by way of a court-approved plan of arrangement and will require the approval of at least 66 2/3% of the votes cast by Tembec shareholders.  Fairfax Financial, a 19.99% shareholder of Tembec, has advised that it is supportive of the transaction.  Tembec's Board of Directors after receiving the fairness opinions of Scotia Capital and National Bank Financial, legal and financial advice and the recommendation of the special committee of its Board of Directors, unanimously recommends that shareholders vote in favor of the transaction at the special meeting of shareholders to be held in July 2017. The transaction agreement contains a non-solicitation covenant on the part of Tembec, subject to the customary "fiduciary out" provisions. The transaction does not require the approval of Rayonier Advanced Materials shareholders. 

In addition to Tembec shareholder and court approvals, the transaction is also subject to other conditions and receipt of other approvals, including receipt of regulatory approvals.  Subject to obtaining the required approvals, the transaction is expected to be completed in the second half of 2017.

Fairness Opinions

Tembec retained Scotia Capital as a financial advisor and the special committee of the Tembec Board of Directors retained National Bank Financial to provide an opinion on a non-contingent fixed fee basis. Scotia Capital and National Bank Financial each provided an opinion that, as of May 24, 2017, subject to the assumptions, limitations and qualifications contained therein, the consideration to be received by the shareholders pursuant to the transaction is fair to such shareholders from a financial point of view. The fairness opinions will be included in the management information circular to be filed and mailed to Tembec shareholders in connection with the approval of the transaction at the special meeting.