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TimberWest Forest's Going-Private Agreement - 02/15/11 Article Follow-Up

Apr. 11, 2011 2:43 PM ETTMWEF
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 As a follow-up to Absaroka Capital's 02/15/11 article entitled "TimberWest Forest: An Attractive Deep-Value Opportunity" we would like to call attention TimberWest's agreement announced today to be acquired by two leading Canadian pension funds for $6.48 per existing stapled unit, which represents a 29% cash-on-cash potential return and 430% potential annualized IRR from the original article publication date until today.  The proposed purchase price also represents a 25% premium over the 20-day volume-weighted average price of TimberWest stapled units on the Toronto Stock Exchange for the period ended April 8, 2011, the last trading day prior to the announcement.  The total transaction value is $1.03bn including assumed debt, which values TimberWest's landholdings at approximately $1,275/acre.

The British Columbia Investment Management Corporation (“bcIMC”) and the Public Sector Pension Investment Board (“PSP Investments”) have partnered together for this bid.   bcIMC currently holds approximately $107 million aggregate principal amount of convertible debentures of TimberWest convertible into approximately 31.1 million stapled units, or approximately 22% of the total fully diluted outstanding stapled units (assuming the conversion of all of TimberWest's outstanding convertible debentures).  As part of the definitive agreement, TimberWest has a 60-day "go-shop" period during which it is permitted to solicit a superior proposal. bcIMC and PSP have no right to match a superior proposal made during this period.  If TimberWest is successful in soliciting a superior proposal during the go-shop period, there will be a break fee payable to bcIMC and PSP Investments of approximately $18 million, or approximately 1.8% of total transaction value, which is quite reasonable.  As a holder of TimberWest convertible debentures, bcIMC is a related party to TimberWest.  Accordingly, the TimberWest Board of Directors formed a special committee of independent directors in connection with the transaction.  In addition, as required under applicable securities laws, the special committee engaged UBS Securities Canada Inc. to conduct an independent valuation of TimberWest's stapled units. The purchase price falls within the range of values identified in the independent valuation.  Based on the recommendation of the special committee, TimberWest's Board of Directors has approved the transaction.

As TimberWest has been trading above the $6.48 offer price today, it appears the market believes a higher-bid may be possible.  After the dramatic increase in timber demand from Asia over the last year, it interesting management decided to sell at this stage in the commodity cycle.  Moreover, the unfortunate earthquake/tsunami tragedy in Japan should increase demand for lumber as homes and businesses are rebuilt.  This transaction has important considerations for Timber-REITs in the United States and other investors in the timberland space.  It will be interesting to see shareholders reaction to the Board’s decision to sell at this time and see if any additional bidders step-forward.  

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