RE:2 billion in shelf prospectusThanks, this is an excellent post. There are some likely uses I can think of but it gets complicated as it ties into the go-forward strategy. The sky really is the limit.
I think we will see this money used not just for the status quo (newer, shinier mills) but for a different purpose – setting a new tone, joining the wider peer group, and leaving the rest of the forestry names behind. I see this as a way for West Fraser to increasingly cast a long shadow in the industry, prompting smaller peers to combine and giving them far greater financial muscle to “intervene” in cases where rouge operators insist on flooding markets locally. West Fraser has a pretty unique advantage given their platform (it is objectively the best in lumber and panels), governance/Board mandate (clear, simple, balanced, and aligned), execution consistency, and head start on capital allocation.
The platform is simple and we all know about that. Rather, it's the little things like governance that will come more to prominence. Board mandate? They have an “equity holding policy”. Board members must hold more than 3x their annual fees, so in practically that’s pushing $300k in shares a minimum. VPs are 2x at minimum. Senior leaders? The CEO must hold at least 3x his salary. It doesn’t matter much in this case as Ray Ferris owns $6.8M in shares, nearly 10x his base salary of ~$700k. So the average VP that means they need to be ‘in this” to the tune of at least $400k.
https://www.westfraser.com/investors/corporate-governance/equity-holding-policy That's what we want to see. It’s critical as the Nasim Taleb notion of skin in the game aligns outcomes and prevents the directors and management from doing things that don’t benefit you. It sounds like common sense but it isn’t that common. One of my few investing losses was attributable largely to this at Conifex. Or, for a more relevant example, take Canfor. By my count has four (4) Board members who own zero shares. Are you kidding me??? This is a side gig with a $90,000 annual retained, everyone is already rich, there’s other cash there too meaning the majority get ~$140,000 to attend a few meetings where there insist no dividend and no buy backs.
Realted,I just learned today Canfor does not provide share based compensation. They say:
Equity Compensation Plan Information
“There are no compensation plans of the Company under which equity securities of the Company are authorized for issuance and the Company has no securities to be issued upon exercise of outstanding options, warrants and rights as of December 31, 2019. Given the longer term incentive nature the Company’s existing compensation arrangements under the PBP, the Company does not currently plan to grant further stock options and has not granted options since 2002. Accordingly, option grants are not considered as part of the determination of compensation for Named Executive Officers.”
That’s why you have skin in the game. Without it, you’re in it for the payday and don’t care about the share price. At the exec level, it’s impossible to not to have some shares. In fairness, Don Kayne has 20,479 direct shares, so that’s about $540,000. Presumably, he’d be conflicted out of direct ownership of competing names (not legally but ethically), and the mutual funds/ETFs in forestry are brutal, so it’s not unrealistic to think that’s it for Don’s exposure. That $540,000 is not very much exposure when you consider his age (62), tenure, and earnings ($750,000 base and $250,000 bonus in 2019, a bad year).
The above speaks to why there’s a large valuation gap between West Fraser and its peers. It’s not just equipment and efficiency. They have a significant head start on being a consistent investment and a more prudent allocator of capital. This resulted in getting Norbord in a coronation. This will result in them widening their industry lead, as their increased equity premium will give them the muscle to dominate in their home sector. That’s not a new trend, but we’ll see its impact more in the future at greater scale. Yet, they are the leader but only with 11% of North American lumber and 28% of NA OSB. OSB is mostly set, but the top 10 lumber names only have 56% of production volume. West Fraser can’t just take on 4x more capacity. Rather, they will set the tone and lead the pack, prompting more consolidation in their wake. That’s a good outcome. I expect that 44% to be cut in half in the coming years.
So, I’ll summarize how I see this all playing out – from the Shelf Prospectus Filing to the strategy – happening in a pending post. My initial draft is already a long one and will likely just move to a blog format in the future to keep everything in one place.
lifeisgood1010 wrote: While many company issue shelf prospectus without using it.If a company do so, it's to give them the flexibility to act when needed.
Money is comming in fast in furious in the bank accountof WFG, still they are preparing for what?
I think that these guys at West Fraser are brillant by taking their time to buy back their own shares.
When you see your number one shareholder reducing it's position, why would you do him a favor
by being agressive in your buyback.
If you are a long term investors as i am, the recent buyback equal to 98 cents / share of dividend over the past month alone.
Dosperos would be able to answer this question more than i but i wonder what is next target of WFG.They are not issuing this 2 billion for the fun of it.
Also, if they buy a Canadian company like IFP, i wonder how much of the CDN assets they would have to sell to please the authority.
My guess is as good as anybody but i would bet that when they report Q1, they will increase the dividend.Maybe not subtantially because i beleive they probably have plan to grow the company(As per their comments on the CC)
In any event, i am please to be a WFG shareholder and have the patience to see this story play out to it's fullest.