Transaction provides compelling value to
Tembec shareholders
Rayonier Advanced Materials Inc. (the “Company” or “Rayonier
Advanced Materials”) (NYSE: RYAM) today reaffirmed its commitment
to acquire Tembec Inc. (“Tembec”) (TSX: TMB) on the terms
previously agreed with Tembec. The Company believes that the
previously announced arrangement consideration of C$4.05 in cash or
0.2302 of a share of Rayonier Advanced Materials common stock per
Tembec common share—which is subject to proration so that
approximately 63% of the aggregate consideration is paid in cash
and 37% is paid in Rayonier Advanced Materials stock—provides
compelling value to Tembec shareholders. The Company does not
intend to increase the consideration offered to Tembec
shareholders.
On July 14, 2017, the Company received a letter from Oaktree
Capital Management (”Oaktree”) indicating its intent to vote
against the Company’s acquisition of Tembec at the special meeting
of Tembec shareholders. Oaktree’s letter contains a number of
misleading statements, which we address in Appendix A. The Company
believes that the previously announced arrangement consideration,
which was the result of extensive negotiations with Tembec,
represents a full and fair price and an attractive valuation for
the following reasons:
- Significant premium – The
arrangement consideration represents a significant premium to
Tembec’s historical share price. The headline offer price of C$4.05
and the current implied value of C$4.20 per Tembec share represent
a 37% and 42% premium, respectively, to Tembec’s unaffected share
price on May 24, 2017, and a 76% and 83% premium, respectively, to
Tembec’s VWAP for the 12 months pre-announcement.
- Certainty of value – The cash
component of the arrangement consideration represents approximately
63% of the current overall value of the arrangement consideration
and provides a substantial and immediate value realization for
Tembec shareholders.
- Upside participation – With
approximately 37% of the consideration in the form of Rayonier
Advanced Material stock, Tembec shareholders have the opportunity
to capture enhanced long-term value prospects through ongoing
participation in a larger, more diverse company.
- Enhanced liquidity – In the year
prior to the announcement, Tembec common shares traded an average
of $0.13 million per day. In contrast, Rayonier Advanced Materials
shares traded an average of $7.8 million per day in the same
period, which means that the Company’s shares are greater than 60
times more liquid than Tembec shares. As part of a significantly
larger company, Tembec shareholders receiving Rayonier Advanced
Materials common stock will benefit from this significantly
increased market liquidity.
- Full price discovery – Tembec’s
Board of Directors and management, with the assistance of their
financial and legal advisors, reviewed strategic alternatives for
nearly two years, including the continuation of Tembec's existing
stand-alone business plan and the divestiture of core and non-core
segments, before recognizing that a transaction with Rayonier
Advanced Materials was the best option for Tembec and its
shareholders. The interest of Tembec’s Board of Directors and
management are fully aligned to that of shareholders, and Tembec’s
Board received two fairness opinions to the effect that the
transaction is fair.
- Optionality on superior offers –
Tembec also retained the ability to engage in discussions with
respect to an unsolicited competing offer that could reasonably be
expected to be more favorable to Tembec shareholders, from a
financial point of view, than the transaction with the Company. In
the nearly two months since the arrangement agreement was
announced, no third party has made such an offer.
Tembec’s Board of Directors unanimously approved the arrangement
agreement and recommended that its shareholders vote “FOR” the
arrangement. Institutional Shareholder Services (“ISS”), an
independent proxy voting and corporate governance advisory firm,
also recommended that Tembec shareholders vote “FOR” the
arrangement with Rayonier Advanced Materials, stating that “In
light of the premium offer consideration, the favorable market
reaction and the sound strategic rationale, shareholder approval of
this arrangement is warranted.” The research community also
supports the transaction. For example, Bank of America Merrill
Lynch stated, “… RYAM is paying a sizable premium … and could bring
significant value to Tembec through its expertise in the cellulose
specialties business, potential for an improved capital structure
and more steady cash flow generation to invest in the business,
among others.” Similarly, TD Securities stated, “… we believe that
RYAM’s bid is fair.”
The Company believes that the agreed-upon consideration reflects
the significant value that can be created through a combination
between the two companies, but also the meaningful risks associated
with Tembec’s business segments, including:
- Commodity businesses – With the
significant majority of Tembec’s revenue in commodity markets,
including High-Yield Pulp, Newsprint and Forest Products, the
agreed-upon price reflects the volatile nature of these businesses
as they are currently operating above historical averages. In
High-Yield pulp, there is 1.8 million ton expansion of the
competitive BEK pulp coming on line in 2017, with other announced
capacity expansions in Asia and South America to follow in 2018.
Newsprint demand continues to decline by over 8% per year. Forest
Products is driven by US and Canadian housing. These markets face
threats from rising interest rates and trade disputes.
- Softwood Lumber tariffs – Tembec
has a significant exposure in the developing trade tension between
Canada and the United States with historical lumber export volumes
in excess of 50%. Recently, approximately 27% tariffs were
announced on lumber exported from Canada to the United States and
the outlook of the negotiations is in flux given the change in
administrations at each government. While prior tariff disputes
were eventually settled after numerous years, there can be no
assurances of a similar outcome.
- Currency – Nearly 50% of
Tembec’s Canadian sales are denominated in US dollar with the
majority of their production inputs in Canadian dollar. A stronger
Canadian dollar can significantly affect Tembec’s cost position
compared to foreign competitors. At the time of announcement, the
Canadian dollar was trading below historic averages and, as
expected, is reverting to more normal levels. One Canadian dollar
was worth around 0.74 US dollars at the time of announcement. Since
then, the Canadian dollar has appreciated by over 6%. Based on
Tembec’s disclosure, a 1% change in Canadian dollar impacts EBITDA
by C$7 million; resulting in a potential reduction in EBITDA of
C$43 million.
- Expense and risk to synergies –
While the Company expects to achieve upwards of $50 million of
synergies over the three years following the completion of the
arrangement, it will also require considerable time, money and
resources along with increased execution risk to capture these
synergies. These synergies are a direct result of the combination
and will only be achieved with careful investment and
management.
Given the lengthy exploration of strategic alternatives that
Tembec undertook and the attractive premium and valuation offered
by the Company, a rejection of the offer exposes Tembec
shareholders to significant market valuation risk and diminished
liquidity. Rayonier Advanced Materials stock has benefited
approximately 15% since the announcement. With cash on hand equal
to approximately 40% of the equity market capitalization of the
Company, much of this value was created by providing clarity on the
Company’s strategy. With over $345 million of cash on hand and free
cash flow generation of $90 to $100 million, the Company also has
significant capacity and ability to create shareholder value
through other strategic and financial alternatives. The Company has
successfully implemented a four pillar approach to driving value,
focused on cost improvements, new product development, optimizing
existing markets and executing on complementary acquisitions. The
Company continues to evaluate other opportunities independent of
its acquisition of Tembec and believes that it has various
strategic alternatives, including or excluding Tembec.
Rayonier Advanced Materials believes that its acquisition of
Tembec is in the best interests of both companies and their
shareholders and reaffirms its commitment to acquire Tembec on the
previously announced terms.
About Rayonier Advanced Materials
Rayonier Advanced Materials is a leading global supplier of high
purity cellulose, a natural polymer commonly found in cell phones,
computer screens, filters and pharmaceuticals. The company
engineers dozens of customized products at its plants
in Florida and Georgia, delivering unique
properties, unparalleled consistency and exceptional quality.
Rayonier Advanced Materials’ facilities can produce approximately
485,000 tons of high purity cellulose and 245,000 tons of commodity
products. With approximately 1,200 employees and revenues of US$870
million Rayonier Advanced Materials is routinely ranked among the
nation’s top 50 exporters, shipping products to five continents, 35
countries and 80 ports around the world. More information is
available at www.rayonieram.com.
About Tembec
Tembec is a manufacturer of forest products – lumber, paper,
pulp and high purity cellulose – and a global leader in sustainable
forest management practices. Principal operations are in Canada and
France. Tembec has approximately 3,000 employees and annual sales
of approximately C$1.5 billion. Tembec is listed on the Toronto
Stock Exchange (TMB). More information is available at
www.tembec.com.
Forward-Looking Statements
This document contains statements that are forward-looking
statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof. All forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties
include, but are not limited to: the timing of the closing of the
transaction; whether a transaction will be consummated at all and
the ability to obtain required regulatory approvals and satisfy the
other conditions to closing the transaction; the expected benefits
of the transaction and whether such benefits will be achieved on a
timely basis or at all; our ability to successfully integrate
acquired businesses; prolonged weakness in general economic
conditions; unfavorable weather conditions or natural disasters;
our reliance on government permits or approvals; risks related to
federal, state, local and foreign government laws, rules and
regulations; risks related to our reliance on information
technology; manufacturing issues that may arise; adverse
consequences of current or future legal claims; our ability to hire
and retain a sufficient seasonal workforce; risks related to our
workforce, including increased labor costs; loss of key personnel;
fluctuations in foreign currency exchange rates; impairments or
write downs of our assets; changes in accounting estimates and
judgments, accounting principles, policies or guidelines; a
materially adverse change in our financial condition; and other
risks detailed in Rayonier Advanced Materials’ filings with the
U.S. Securities and Exchange Commission, including the “Risk
Factors” section of Rayonier Advanced Materials’ Annual Report on
Form 10-K for the fiscal year ended December 31, 2016 and in
Tembec’s filings with the Canadian Securities Administrators,
including the “Risk Factors” section of Tembec’s Annual Information
Form for the fiscal year ended September 30, 2016. All
forward-looking statements attributable to us or any persons acting
on our behalf are expressly qualified in their entirety by these
cautionary statements. All forward-looking statements in this
document are made as of the date hereof and we do not undertake any
obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise, except as
may be required by law.
Additional Information
Further information regarding the transaction is contained in
the management information circular in connection with the special
meeting of the Tembec shareholders filed by Tembec with the
Canadian Securities Administrators on June 23, 2017 and furnished
by Rayonier Advanced Materials on Form 8-K filed June 23, 2017 with
the U.S. Securities and Exchange Commission. Investors and security
holders are urged to read the information circular, as it contains
important information concerning the proposed transaction.
Investors and security holders may obtain a copy of the arrangement
agreement, information circular and other meeting materials at
www.sec.gov and www.sedar.com. This document is for informational
purposes only. It does not constitute an offer to purchase shares
of Rayonier Advanced Materials or Tembec or a solicitation or
recommendation statement under the rules and regulations of the
Canadian securities regulators, the U.S. Securities and Exchange
Commission or other applicable laws.
APPENDIX
A
Rayonier Advanced Materials Response to
Oaktree’s False and Misleading Assertions
Oaktree Misleading Statement: “Oaktree recognizes the
strategic merit of the combination, yet Tembec shareholders are not
receiving fair consideration for the value created by the
combination”
The Facts:
- Rayonier Advanced Materials believes
that Tembec shareholders are receiving full and fair consideration
for their Tembec shares and an appropriate share of the incremental
value created by the combination
- The purchase price represents a
significant premium to Tembec’s historical trading levels
- Headline offer price of C$4.05 per
Tembec share represents a premium of:
- 37% to Tembec’s unaffected share price
of C$2.95 on May 24, 2017
- 76% to Tembec’s VWAP for the 12 months
pre-announcement of C$2.30
- Current implied value of C$4.20 per
Tembec share represents a premium of:
- 42% to Tembec’s unaffected share price
of C$2.95 on May 24, 2017
- 83% to Tembec’s VWAP for the 12 months
pre-announcement of C$2.30
- Rayonier Advanced Materials’
perspective is also supported by:
- The market:
- Rayonier Advanced Materials’ stock
price is up 15% since the day prior to announcement, while Tembec
stock is up 42% or nearly 3x the appreciation realized by Rayonier
Advanced Materials shareholder
- The research community:
- BofA Merrill Lynch: “We
believe RYAM is paying a fair price for Tembec considering its
different product lines (i.e. challenges in newsprint, potential
headwinds in lumber from the US softwood lumber trade case), the
cash cost position of its mills and other risks associated with the
business. Additionally, we note that RYAM is paying a sizable
premium….and could bring significant value to Tembec through
its expertise in the cellulose specialties business, potential for
an improved capital structure and more steady cash flow generation
to invest in the business, among others.”
- TD Securities: The purchase
price represents “a modest discount to the global pulp sector
average…arguably reflecting Tembec’s small scale and inconsistent
performance from the Company’s sawmills / BCTMP pulp assets…we
believe that RYAM’s bid is fair.”
- Independent shareholder advisors:
- Institutional Shareholder Services
(ISS): “The proposed premium offer consideration
provides shareholders with flexibility to participate in the growth
opportunities associated with the combined business of increased
size, scale and liquidity and/or to receive the consideration in
the form of cash that provides immediate liquidity (subject to
proration limits). In light of the premium offer consideration,
the favorable market reaction and the sound strategic rationale,
shareholder approval of this arrangement is warranted."
- The board of directors of Tembec:
- “The board of directors of Tembec (the
"Board") has unanimously determined that the Arrangement is in
the best interests of Tembec. The Board has unanimously
approved the Arrangement and recommends (without any abstention)
that Tembec shareholders vote FOR the Arrangement Resolution.”
Oaktree Misleading Statement: “Rayonier has a variety of
levers available to it to improve its offer for Tembec”
The Facts:
- Rayonier Advanced Materials’ approach
to M&A focuses on intrinsic value and long-term shareholder
returns rather than premiums, multiples or near-term share price
movements
- This analysis:
- Is based on the Company’s risk-adjusted
outlook for the business, inclusive of combination synergies and
other opportunities, relative to the cost of capital
- Anchors the indifference point for the
Company with respect to a transaction involving Tembec
- Through extensive negotiations with
Tembec, Rayonier Advanced Materials has already been pushed to the
limits of its willingness to pay
- Mid-February 2017: Offered C$3.15 per
Tembec share
- February 27, 2017: Increased its offer
to C$3.70 per Tembec share
- March 14, 2017: Increased its offer to
C$4.00 per Tembec share
- May 19, 2017: Increased its offer to
C$4.05 per Tembec share, representing an increase of 29% relative
to its initial offer
Oaktree Misleading Statement: “Tembec could generate more
shareholder value as a stand-alone entity.”
The Facts:
- Tembec’s stand-alone business is
subject to significant risks and challenges, including:
- Exposure to commodity-oriented segments
(e.g. newsprint, high yield pulp, lumber) with challenging cyclical
and secular fundamentals
- Cyclicality in paper and a paperboard
pricing, where a $50 per tonne reduction in pricing would decrease
EBITDA by approximately C$18 million
- Foreign exchange exposure, where a 10%
strengthening of the CAD / USD would decrease EBITDA by ~C$70
million (note that the CAD has strengthened by 6.1% since
announcement, implying a potential ~C$43 million impact on
EBITDA)
- The current tariffs on softwood lumber
imports into the US and the terms of a new Softwood Lumber
Agreement could materially impact EBITDA.
- The need for significant capital
investment in Tembec’s sawmills, as the mills have seen
significantly underinvestment over the last ten years
- The transaction with Rayonier Advanced
Materials arose out of a comprehensive and rigorous process
conducted by Tembec over a period of nearly two years to seek
alternative transactions involving a sale of the whole or any part
of the Company
- The board of directors of Tembec
considered, among other alternatives, “the continuation of Tembec's
existing stand-alone business plan and a strategic
repositioning of Tembec, cost reduction plans, potential
asset combinations of Tembec's forest products, newsprint
and/or specialty pulp businesses with other industry players, the
possible divestiture of certain of Tembec's core and non-core
business segments”
- Pursued a sale of the forest products
business
- Pursued a sale of the core specialty
pulp facilities in Temiscaming and Tartas, including contacting
eleven parties and providing a confidential information memorandum
to eight interested parties
- Over the two-year period that the board
of directors of Tembec pursued the above alternatives:
- Tembec’s financial results fluctuated
significantly
- Tembec’s stock price never closed
higher than C$3.02 per share with an average closing price of
$C1.54 during the period
- Shareholders had extremely limited
liquidity, with average daily trading volume in Tembec stock of
only ~56,000 shares or ~C$86,000 of value
- Considering all risks, opportunities
and alternatives, the board of directors of Tembec concluded that a
transaction with Rayonier Advanced Materials offered the best
opportunity to generate shareholder value
Oaktree Misleading Statement: “Stand-alone RYAM, on the
other hand, has a significantly more difficult outlook.”
The Facts:
- While we continue to see strong
strategic merit in a combination with Tembec, stand-alone Rayonier
Advanced Materials has a broad range of alternatives to create
shareholder value, starting with the Company’s Four Pillar
strategy:
- Cost Transformation to rapidly
re-shape the business
- Market Optimization to maximize
earnings from optimum product and market mix
- A deep pipeline of New Products
and customer-valued service offerings
- An established Acquisition
program to create a diversified and faster growing business through
complementary combinations
- Importantly, the Company has
significant financial flexibility to pursue alternatives:
- $345 million of available cash and $574
million of total liquidity, including $229 million available under
the revolving credit facility as of March 25, 2017
- Conservative leverage of 2x Net Debt /
LTM EBITDA as of March 25, 2017
- The research community also
acknowledges the range of alternatives:
- BofA Merrill Lynch: “While RYAM
could adjust terms of this transaction, we also believe other
acquisitions may make sense if this deal were to fall through
as RYAM has been actively pursuing M&A as part of its long-term
strategy”
Oaktree Misleading Statement: “Tembec Has Created
Confusion in the Marketplace Regarding Shareholder Support for the
Transaction”
The Facts:
- Rayonier Advanced Materials was
encouraged by the strong support of Fairfax Financial for the
transaction
- As one of Tembec’s largest and most
sophisticated shareholders, their support was a strong endorsement
of the superior value offered by RYAM
- Oaktree doubled its stake in Tembec
after the announcement of the acquisition apparently to leverage an
opportunity to extract incremental value not warranted by economic
fundamentals by threatening the completion of the transaction.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170717005671/en/
Rayonier Advanced MaterialsMediaRyan Houck,
904-357-9134media@rayonieram.comorInvestorsMickey Walsh,
904-357-9162mickey.walsh@rayonieram.comorTembecMediaLinda
Coates, 416-775-2819linda.coates@tembec.comorInvestorsMichel Dumas,
819-627-4268michel.dumas@tembec.com
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