West Fraser Timber Co. Ltd. · TSX:WFG
West Fraser Timber — Merger or Acquisition (July 2004)
30 slides from West Fraser Timber's merger presentation, Jul 22, 2004
Slide 1: Building on Profitability
Building on Profitability July 22, 2004 1
Slide 2: Forward-Looking Statements
Forward-Looking Statements Statements made during this call may constitute forward-looking statements, including statements regarding the anticipated timing and benefits of the transaction between West Fraser and Weldwood. Forward-looking statements, which include all statements that are not histori
Slide 3: Building on Profitability
Building on Profitability ‘2 West fraser Timber Co.Ltd Weldwood of Canada Limited
Slide 4: Building on Profitability
Building on Profitability • Purchase Weldwood for $1.26 billion • Combination of two leading integrated forest product companies • Transaction will create: • Third largest lumber producer in North America • Largest plywood producer in Canada • Eighth largest producer of market pulp in North America
Slide 5: Presentation Agenda
Presentation Agenda • Transaction rationale • Synergies and integration • Acquisition financing • Timing • Summary 5
Slide 6: High Value Growth Opportunity
Transaction Rationale High Value Growth Opportunity • Weldwood is an excellent fit with West Fraser: • Geographically • Strategically • Operationally • Culturally • Combination brings together two of the lowest cost operators in the solid wood sector 6
Slide 7: Acquisition Is "On Strategy"
Transaction Rationale Acquisition Is “On Strategy” West Fraser’s Operating Strategy …Enhanced With Weldwood Low-cost producer Low-cost philosophy/producer Opportunities to share best practices Growth in core business Significant low-cost solid wood producer Fibre integration Increase in pulp assets
Slide 8: Accretion Potential
Transaction Rationale Accretion Potential • $80 million in annual synergies projected • Expected to be realized over 3 years • Utilizes balance sheet strength 8
Slide 9: Weldwood Assets
Transaction Rationale Weldwood Assets Weldwood Capacity Capacity Lumber (MMmbf) * 1 Quesnel 155 2 100 Mile 240 3 Babine ** 165 4 Houston ** 160 5 Decker Lake ** 42 6 Sunpine 240 7 HI-ATHA 280 5 Burns Lake Total Sawmills 4 3 1,282 Houston Prince George Plywood (Msf - 3/8”) 7 Hinton 8 Quesnel 230 12 E
Slide 10: Strong Geographic Fit
Transaction Rationale Strong Geographic Fit • Favourable integration prospects Chetwynd Red Earth • Achievable Terrace Smithers Burns Lake Slave Lake synergies Kitimat Houston Fraser Lake Prince George Whitecourt Hinton Edmonton West Fraser Sawmill Quesnel West Fraser Panel Mill West Fraser Pulp/Pap
Slide 11: Synergy Potential
Transaction Rationale Synergy Potential • Significant upside potential from combined operations • Initial target of $80 million in annual pre-tax synergies Targeted Synergies $ mm Woodlands 11 Lumber operations Best practices 26 Marketing logistics 12 Administration and other 2 Plywood operations 9
Slide 12: Synergy Potential
Transaction Rationale Synergy Potential Announced Synergies as a % of Cost of Production (1) % 16 14 12 10 8 6 4 2 0 Canfor / Donohue / Domtar / West Fraser / Canfor / Weyerhaeuser / Northwood Abitibi E.B. Eddy Weldwood Slocan MacMillan Bloedel (1) Includes SG&A and COGS on an LTM basis. 12
Slide 13: Operating Philosophies and Cultures Are Compatible
Transaction Rationale Operating Philosophies and Cultures Are Compatible • Emphasis on people, safety, low-cost operations and profitability • Proven through existing joint ventures • Favourable integration prospects 13
Slide 14: Geographic Diversity
Transaction Rationale Geographic Diversity Current Post Acquisition % of Operations in Alberta 50 40 30 20 10 0 Fibre Supply Lumber Capacity Pulp and Paper Capacity AAC (m3) Lumber Capacity (MMfbm) Pulp and Paper Capacity (Mt) West Fraser Weldwood Combined West Fraser Weldwood Combined West Fraser W
Slide 15: Growth, Diversification and Enhanced Integration
Transaction Rationale Growth, Diversification and Enhanced Integration 2003 Capacity Solid Wood West Fraser Weldwood Post Acquisition % Chg Lumber (MMfbm) 2,860 1,282 4,142 +45% Plywood (Msf - 3/8”) 270 495 765 +183% MDF (Msf - 3/4”) 270 - 270 Laminated Veneer Lumber (000cf) - 3,051 3,051 Pulp and P
Slide 16: Financial Review
Financial Review Martti Solin Vice President, Finance and CFO 16
Slide 17: Terms
Transaction Terms • Cash purchase price of $1.26 billion • Targeted closing date of Q4 2004 • IP is entitled to refund (after tax) of any duties paid prior to the closing date • Pulp price “earn-out” • Based on pulp prices exceeding US$710 or C$950 per tonne • Earn-out capped at $50 million in total
Slide 18: Acquisition Financing
Acquisition Financing • Transaction fully financed (in millions) Purchase price $1,260 Cash on hand (1) $ 310 Closing adjustments (1) (70) Acquisition bridge facility 900 Fees and expenses 20 $1,210 $1,210 • Additional revolving-term facility of $350 million provides adequate liquidity for operation
Slide 19: Weldwood Historical Performance
Weldwood Historical Performance Income Statements 12 Months Ended December 31, 6 Months Ended June 30, C$ Millions 2003 2002 2004 2003 (Unaudited) (Unaudited) (Uaudited) (Unaudited) Sales (1) 1,244 1,271 738 603 Costs and Expenses Cost of Sales 953 969 500 487 Freight Costs 141 149 77 75 Countervail
Slide 20: Weldwood Historical Performance
Weldwood Historical Performance Segmented Information * 12 Months Ended December 31, 6 Months Ended June 30, C$ Millions 2003 2003 2002 2004 2003 Gross Sales Lumber 577 626 376 286 Panel Board 268 249 159 123 Pulp 399 396 203 194 Total Sales 1,244 1,271 738 603 EBITDA Lumber 62 108 87 26 Panel Board
Slide 21: Accretion to West Fraser
Accretion to West Fraser Factors Influencing Future Earnings • Combined operating performance • Synergies realized • Incremental amortization (purchase price allocation) • Cost of financing 21
Slide 22: Conclusion
Conclusion Hank Ketcham Chairman, President and CEO 22
Slide 23: Larger Lumber Producer
Transaction Rationale Larger Lumber Producer • West Fraser will become the 3rd largest lumber producer in North America (MMfbm) 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 WY Canfor West West GP IP Abitibi Tembec Weldwood Fraser Fraser (ex-Weldwood) Pro Forma 23
Slide 24: Larger Pulp Producer
Transaction Rationale Larger Pulp Producer • West Fraser will become the 8th largest market pulp producer in North America (000 admt) 3000 2500 2000 1500 1000 500 0 WY Tembec IP Koch Bowater Canfor Parsons & West Fraser Domtar Pope & Whittemore Pro Forma Talbot 24
Slide 25: Profitability Enhanced
Transaction Rationale Profitability Enhanced * • West Fraser expects to improve upon leading EBITDA margins Two year EBITDA margin (2002 and 2003) 20 18 16 14 12 10 8 6 4 2 0 West West Nexfor Weldwood IP WY Abitibi Domtar Canfor Georgia Interfor Riverside Tembec Bowater Fraser Fraser Pro Pacific Pro
Slide 26: Enhances Growth Platform
Transaction Rationale Enhances Growth Platform • Objective to maintain investment-grade credit rating • Better positioned to pursue further growth opportunities • Acquisition deepens management pool 26
Slide 27: Timing is Right
Transaction Rationale Timing is Right • Market fundamentals are strong for both solid wood and pulp • Improving outlook on trade front • Our preferred acquisition target is finally available 27
Slide 28: Summary
Building on Profitability Summary • West Fraser has agreed to acquire Weldwood from IP for C$1.26 billion • Transaction targeted to close in Q4 2004 • We believe the strategic fit is ideal • High-value growth opportunity • Expected to create shareholder value now and in the future 28
Slide 29: Appendix
Appendix 29
Slide 30: Weldwood Historical Performance
Weldwood Historical Performance Production and Shipments 12 Months Ended December 31, 6 Months Ended June 30, 1999 2000 2001 2002 2003 2004 Lumber (MMfbm) Production 1,005 1,022 1,058 1,166 1,194 672 Shipments 997 1,014 1,041 1,182 1,190 644 Plywood (Msf - 3/8") Production 430 409 419 433 473 235 Sh
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