Interfor Corporation has reached an agreement with an affiliate of the Kilmer Group to acquire 100% of the equity interests in the entities comprising Chaleur Forest Products (“Chaleur”).
Chaleur owns two modern and well-capitalized sawmill operations located in Belledune and Bathurst, New Brunswick, with a combined annual lumber production capacity of 350 million board feet. Chaleur also operates a woodlands management division based out of Miramichi that manages approximately 30% of the total Crown forest in New Brunswick. This division provides a secure source of fibre supply for the sawmill operations as well as a stable, long-term stream of cash flow from third-party log sales, licence management fees and silviculture activities.
The purchase price is C$325 million, on a cash and debt free basis, which includes approximately C$31 million of net working capital. In addition, Interfor will assume Chaleur’s countervailing (“CV”) and anti-dumping (“AD”) duty deposits at closing, for consideration equal to 55% of the total deposits on an after-tax basis. As of August 31, 2022, Chaleur had paid cumulative CV and AD duties of approximately US$82 million.
On a proforma basis, Interfor’s total annual lumber production capacity will increase to 5.1 billion board feet, of which 44% will be in the US South, 19% in Eastern Canada, 15% in the US Northwest, 15% in British Columbia and 7% in Atlantic Canada.
The acquisition will be immediately accretive to Interfor’s earnings and is expected to provide attractive returns in both the near-term and over the long-term. Interfor estimates Chaleur’s mid-cycle EBITDA to be approximately C$50 million per year pre-synergies, taking into account mid-cycle lumber prices and current run-rate performance. Interfor expects to achieve synergies of C$5 million per year from combined sales and marketing opportunities, shared purchasing programs and general and administrative expense reductions. These synergies are expected to be fully achieved within twelve months of closing, with no capital requirements.
Interfor intends to finance the acquisition with a combination of cash on hand and its existing credit facilities.
The completion of the acquisition is subject to Canadian and U.S. regulatory reviews and customary conditions for a transaction of this kind and is expected to close in the 4Q 2022. Chaleur’s operations were not damaged or impacted by Hurricane Fiona in any way.
Interfor is a growth-oriented forest products company with operations in Canada and the United States.
