Creeping takeover of Canfor may be under wayCreeping takeover of Canfor may be under way
WENDY STUECK
02:54 EST Monday, May 21, 2007
VANCOUVER — — Amit Wadhwaney started buying Canfor Corp. stock in 2002, drawn by the company's sizable footprint in the forestry business and its cheap shares. Mr. Wadhwaney, 53, is a portfolio manager at New York-based Third Avenue Management LLC, where founder Marty Whitman's mantra is “safe and cheap,” and where managers hunt for the out of favour with the kind of appetite others have for gold.
In a cyclical sector such as forestry, Mr. Wadhwaney also looks for companies that have cash on hand to weather bad times. Canfor fit the bill.
By March of this year, Third Avenue's stake had climbed to a little less than 20 per cent. Worried by a flood of red ink at Canfor in the last two quarters of 2006 and a growing gap between Canfor's margins and those of rival producer West Fraser Timber Co. Ltd., Third Avenue teamed up with two other major shareholders to force some changes.
“What concerned us, and we got quite worried, was that you can have a good balance sheet, but if you start hemorrhaging cash at a big rate, you will dissipate the cash on your balance sheet very fast,” Mr. Wadhwaney said in a recent interview.
Together, the three shareholders – the others are B.C. billionaire Jim Pattison and Matthews-Cartier Holdings Ltd., a holding company for Canfor's founding Prentice and Bentley families — hold about 52 per cent of Canfor's stock.
Weeks after the voting pact between what one analyst dubbed “the three amigos” was announced, chief executive officer Jim Shepherd resigned. Renowned investor Stephen Jarislowsky, whose Montreal-based Jarislowsky Fraser Ltd. also owns just under 20 per cent of Canfor, had backed Mr. Shepherd.
Mr. Jarislowsky declined to stand for re-election to Canfor's board. In an interview Friday, he reiterated his position – laid out in a speech from the floor at Canfor's annual general meeting on May 4 – that Canfor's lack of a poison pill makes a creeping takeover not only possible, but probable.
Under market regulations, principal shareholders can buy up to 5 per cent of the company a year or buy shares from other major shareholders for as little as a 15-per-cent premium.
Mr. Wadhwaney says the poison pill debate was a red herring and that the flash point was Mr. Shepherd's performance.
Some might say the creeping is already done. Mr. Pattison, a Canfor director since 2003, owns 25 per cent of Canfor's shares, a stake built up over several years. Mr. Pattison has not publicly discussed his plans for Canfor.
But it's thought that Mr. Pattison, who helped bring about the 2004 deal that saw Canfor take over former rival Slocan Forest Products Ltd., might have his eye on further consolidation – which many say is essential in the light of the pine beetle infestation raging in British Columbia.
As to Third Avenue's penchant for forestry stocks – the firm also has positions in Catalyst Paper Corp. and Abitibi-Consolidated Inc. – Mr. Wadhwaney says the sector won't be in the dumps forever.
“You look beyond the downturn. This is a cyclical business and the cycles can be quite vicious. They can go up and down at a terrific rate. They can be sort of an unknown imponderable. But Canfor has the key ingredient of having a good balance sheet. That is going to take it through the downturn. That in a nutshell is the thought. It's not that complicated.”
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