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Two pension funds reached an agreement on Monday to buy Pacific Coast timberland owner TimberWest Forest Corp. (TWF.UN-T) in a deal valued at $1.03 billion, including debt.
The British Columbia Investment Management Corp. and the Public Sector Pension Investment Board have offered TimberWest unitholders $6.48 per unit in cash, a 19.6-percent premium to Friday's close of $5.42 on the Toronto Stock Exchange.
TimberWest sells timber from the nearly 328,000 hectares (810,000 acres) of forest land it owns on Vancouver Island, and has logging rights on provincially owned forests in the region.
The offer comes at a time of renewed interest in Canada's forestry sector, which has enjoyed increased sales to Asia after struggling through the downturn in lumber demand because of the U.S. housing market collapse.
The British Columbia coastal forest region, where TimberWest's properties are located, was also hit hard by the downturn in the paper market, but timber sellers have recently seen increased demand for pulp logs.
Timber and real estate, as asset classes, typically act as a hedge against inflation and provide stable risk-adjusted returns, attributes that are well matched for the needs of pension plans, the two funds said in a statement.
TimberWest said its board has endorsed the deal, but the company's units jumped more than 20 percent to $6.53 on Monday morning, suggesting unitholders expect a higher bid to emerge.
Vancouver-based TimberWest has a 60-day "go-shop" period during which it can seek a superior proposal.
If TimberWest finds a better deal, a break fee of about $18 million would be payable. The two funds do not have a right to match a superior proposal made during this period.
In the absence of another deal, the transaction is expected to close by the end of June. It is subject to regulatory approvals and the support of two-thirds of unitholders.
In a separate release, TimberWest said it will reschedule its annual meeting from April 26, to a later date that will coincide with the special meeting to approve the takeover. The bid was unanimously approved by the company's independent directors.
Pension funds, which have large pools of capital and long-term investment outlooks, have been among the most active private equity dealmakers in Canada since the 2008 downturn, with investments in real estate, natural resources and other areas.
BMO Capital Markets, the investment banking arm of Bank of Montreal acted as financial adviser to TimberWest and the special committee evaluating the funds' offer. It will also be managing the go-shop process on behalf of the company.
UBS Securities Canada acted as independent valuator and financial adviser to the special committee. McCarthy Tetrault LLP acted as legal counsel to TimberWest.