TimberWest Forest Products (OTC:TMWEF) [TWF.TO] is a Vancouver-based Canadian timber company that has been on the ropes since the US housing crash of 2009. Through its heavy leverage, TMWEF was on the verge of closing its doors as timber and lumber demand progressively shriveled up. Over the past year, management has been taking advantage of the increased activity in China, and in the most recent quarter reported about 60% of revenues was from Asian exports.
Yesterday, management announced they accepted an offer to go private from one of their largest unit holders. Two large Canadian pension funds have offered C$1.03 billion, or C$6.48 per unit, including assuming its massive debt. This represents a 25% premium to the average closing price over the past 20 days. The company has 60-day window to shop for a better deal.
This week, the company is scheduled to make its next interest payment on the note portion of its stapled units. As previously announced, this payment will be made payment-in-kind, or PIK, where current unit holders will receive more units rather than a cash payment. After distribution, the offer price will be reduced by an equal amount, and will be C$6.16.
While it seems TimberWest has turned the corner operationally, the growth in the number of stapled units over the past 2 years, and its associated debt, was substantial.
The acquisition offer is less than the face value of the note portion of the stapled units - C$6.48 offer versus $C8.94 face amount of the stapled noted. Some may believe the offer is low ball based on the company’s prospects. I would be in that camp. Hopefully, now that TimberWest is officially on the auction block, a higher bid may materialize, but is doubtful. Like many of these situations for retail investors, TimberWest privatization appears to be fait accompli.
As always, investors should conduct their own due diligence, should develop their own understanding of these potential opportunities, and should determine how it may fit their current financial situation.
Disclosure: I am long OTC:TMWEF and have been a unitholder since 2009, and previously from 2003 to 2007