Smart Pulp thinking Colour me impressed. I didn't realize there was a Shanghai futures contract for pulp. That's excellent as I'd relied on the infrequently updating Canada summary (https://www.nrcan.gc.ca/our-natural-resources/domestic-and-international-markets/current-lumber-pulp-panel-prices/13309) Futures is helpful to have for this market.
Do you know what's driving the market rise? Lumber ha the 10 year old supercycle thesis which I think is largely accurate (now). Bad times since '07 have forced supplier discipline in, allowed demand to finally outstrip capacity, and coincided with new demand levers. The fall of the BC fibre basket was a thing too. I wonder if there's anything similar here. The OSB panels parallel is that of stopping the race to the bottom (competing on price) and also finding new applications. I was impressed, anecdotally, but LPX converting OSB mills to siding mills. Who knows, maybe the slower capacity adds and retrofitting some commodity pulp facilities to tissue or spec. cellulose has or could help.
Good point on the baseline price target. Jimmy's offer for CFP was outright predatory and I'm pleased it didn't see the light of day. I'd be worried about this sort of thing here too.
Mercer is a good company. I'd pitched CFF as CFX could take it out quite easily. Mercer has a market cap 10x that of CFF, and carries a lot of debt. So their current EV is $1.5B USD. A 1005 equity premium would be another $0.7B. So you'd be in it for pushing $3B CAD pretty quick. CFX could not do that but CFP could.
CFP would be pleased to get a hold of the big German sawmill too. Per page 7, this sort of asset would resonate (as would this list).
https://secureservercdn.net/198.71.233.96/4p3.786.myftpupload.com/wp-content/uploads/2020/11/2020-12-02-Mercer-International-Inc-Investor-Presentation.pdf?time=1610738028
I heard their CFO I think it was at an RBC conference a while back and they have opportunity to grow the sawmilling capacity around the pulpmills. Rosenthal and Stendhal at least. That's congruent with their strategy in Sweden. Moreover, it's a bold Europe play to counter WFT taking good assets in Belgium and Scotland per Norbord.
No idea what that would look like, but CFP should simply roll in Mercer and CFX, then run the assets as two divisions. This is where they'll regret running the company for Jimmy rather than to maximize shareholder value, as there's about a billion dollars of phantom value that could give them more balance sheet options. But still, they could likely pay Mercer the $1B of liquidity they have on hand, maybe do something creative with the softwood refund (monetize it like Conifex did) and then issue stock for the rest. Well, or maybe have CFX and CFP jointly acquire as CFX has borrowing facilities, so then take Mercer and run as a joint CFP/CFX business and then later absorb CFX into CFP.
Looking at the Mercer pulp mills they're pretty impressive. You could always borrow a few billion based on those too, so maybe I am over thinking it. Much like WFT bought the best in OSB, it would make sense for CFP/CFX to buy the best in NBSK mills.
Last, they'd need to consider if Resolute or something could provide more bang for its buck -- it's a cheaper takeover with more pulp (less high quality) but way more lumber. 5x more lumber. That would be pretty compelling for CFP. Something is afoot with the RFP share price too. I've had a big positon here since March and think it's easiy got another double in it. If RFP keeps doing as well as it has been, it might pave the way for the old vertical integration style of biz that wasn't trendy for a while there.