Canfor Corporation · TSX:CFP
Canfor — Merger or Acquisition (November 2003)
26 slides from Canfor's merger presentation, Nov 25, 2003
Slide 1: Creating the Premier British Columbia Based Forest Products Company
Creating the Premier British Columbia Based Forest Products Company David Emerson President & Chief Executive Officer Canfor Corporation Jim Shepherd President & Chief Executive Officer Slocan Forest Products Ltd.
Slide 2: Summary of Transaction Terms and Timing
Summary of Transaction Terms and Timing
Slide 3: Transaction Terms
Transaction Terms Offer Price • Slocan shareholders to receive 1.3147 Canfor shares for each Slocan share held • 41% premium based on November 24 closing prices • 50.5 million Canfor shares to be issued Equity Value • $464 million Enterprise Value • $628 million Transaction Structure • Plan of Arran
Slide 4: Timing and Approvals
Timing and Approvals • Timing: – Announcement: • November 25, 2003 – Slocan Meeting Date: • Q1 2004 – Closing: • Q1 2004 • Approvals: – Approval of at least 75% of votes cast by Slocan shareholders – Approval of simple majority of votes cast by Slocan shareholders excluding the shares beneficially o
Slide 5: Creating the Premier British Columbia Based Forest Products Company
Creating the Premier British Columbia Based Forest Products Company
Slide 6: Transaction Rationale
Transaction Rationale • Critical mass in wood products with product diversification • Complementary assets • Opportunity to leverage best practices • Strong platform for future growth • Significant shareholder value 6
Slide 7: Strategic Fit
Strategic Fit Canfor’s Objectives Slocan Delivers • Build a leading lumber franchise 9 Lumber is Slocan’s core business • Strategic SPF supply channel leadership 9 Largest SPF manufacturer in the world • Lowest cost producer 9 Significant synergies • Grow to 5+ billion fbm of lumber 9 5+ billion boa
Slide 8: Critical Mass in Wood Products With Product Diversification Fit
Critical Mass in Wood Products With Product Diversification Fit Pulp Wood Panels & Products Paper • Achieve top • Provides product • Focus on achieving quartile cost diversification low cost structure among production • Fibre management N.A. producers strategy supports • Optimize value • Supply high
Slide 9: Complementary Assets
Complementary Assets Capacity Location Canfor Slocan Lumber (MMfbm) 28 29 1 Bear Lake 265 3 2 Chetwynd 244 3 Fort Nelson 90 4 Fort St. James 320 5 Fort St. John 290 6 Grande Prairie 230 7 Hines Creek 95 British Columbia 5 30 Alberta 8 Houston 600 9 Isle Pierre 250 7 10 to 11 Mackenzie 480 10 11 12 t
Slide 10: Leverage Best Practices in Wood Products
Leverage Best Practices in Wood Products Leader in Asset Unparalleled Supply + and Fibre = Lumber Chain Optimization Franchise 10
Slide 11: Leverage Best Practices in Supply Channels
Leverage Best Practices in Supply Channels Home Centre Pro Dealer/Builder Industrial Offshore Core Value Products Square Edge MSR MSR / J Grade J-Grade Premium Value Products Furring Strips FJ Studs FJ Studs Fascia Fascia Decking Decking 11
Slide 12: "Super Mill" Strategy
“Super Mill” Strategy • “Super Mill” strategy represents a fully integrated process from harvesting to customer receipt – Large mills run at maximum practical capacity – Railcars continuously shipped – Vendor managed inventory; customers always stocked • Results in top tier gross margins Pro Dealer
Slide 13: Strong Platform for Future Growth: Lumber Capacity
Strong Platform for Future Growth • Largest SPF manufacturer in the world • 2nd largest North American lumber producer • Primary lumber capacity of approximately 5.2 billion fbm 8,000 (Lumber Capacity MMfbm) 6,000 4,000 2,000 0 WY Pro IP CFP GP WFT A SFF TBC Sierra DTC Forma Pacific 13
Slide 14: Strong Platform for Future Growth: Equity Value
Strong Platform for Future Growth • Top tier Canadian forest products company 4,000 (Equity Value C$ Millions) Synergies 3,000 2,000 1,000 0 A DTC NF Pro WFT CAS CFP NS TBC SFF IFP RFP Forma (1) Pro forma equity value with synergies derived by applying Canfor’s current 2004E EBITDA multiple to pro f
Slide 15: Significant Shareholder Value
Significant Shareholder Value • Appealing financial metrics – Significant synergies • First mover advantage – BC consolidation • Significant leverage to lumber recovery and SLA resolution • Improves flexibility under the SLA and timber reform 15
Slide 16: Substantial Synergies
Substantial Synergies • $60 million of synergies readily achievable Lumber Marketing $33 M Lumber Mill Optimization $15 M $60 M Optimization of Woodlands $7 M G&A $5 M • Significant one-time working capital reduction also available • $60 million run-rate expected to be realized within first 12 month
Slide 17: Synergy Comparisons
Synergy Comparisons • Proven ability to achieve synergies 45% Realized Synergies (% of Operating Expenses) Announced Synergies 32% 30% Canfor / Slocan 18% 19% 16% 8% 15% 15% 13% 8% 13% 10% 8% 0% Canfor / Donohue / NorskeCanada / Abitibi / Bowater / Weyerhaeuser / Northwood Quno Pacifica Papers Donoh
Slide 18: Significant Shareholder Value Creation
Significant Shareholder Value Creation (C$ in millions, except per share amounts) Canfor Pro Forma Status Quo (With Synergies) 2004E EBITDA (1) $228 $381 Enterprise Value / 2004E EBITDA 6.31x 6.31x Enterprise Value $1,439 $2,404 Equity Value (2) $745 $1,472 Shares Outstanding 81.2 131.7 Equity Value
Slide 19: Appealing Financial Metrics
Appealing Financial Metrics 2002 EBITDA 2002 EPS $400 $0.80 $300 $332 $0.60 $0.65 (C$ per Share) (C$ millions) $200 $0.40 $158 $100 $0.20 $0.07 $- $- Canfor Pro Forma Canfor Pro Forma (1) Pro forma includes $60 million of synergies (2) EBITDA is before reversal of duties, termination benefits and mi
Slide 20: Flexible Capital Structure
Flexible Capital Structure • Enhanced balance sheet Selected Balance Sheet Data As at September 30, 2003 (C$ in millions) Canfor Slocan Pro Forma Total Assets 2,348 712 3,320 Acquisition Financing (1) - - 62 Long Term Debt 569 216 785 Shareholders Equity (2) 1,056 265 1,520 Total Liabilities & Share
Slide 21: Flexible Capital Structure
Flexible Capital Structure • Strong financial capitalization – go forward flexibility Net Debt / Net Debt / EBITDA (1) (1) As at September 30, 2003 Total Cap LTM 2003E 2004E Abitibi-Consolidated 61.0% 9.0x 8.7x 4.4x Canfor 35.7% 6.1x 5.1x 2.6x Cascades 52.6% 3.8x 3.8x 3.2x Domtar 46.3% 2.5x 2.6x 2.0
Slide 22: Improved Equity Position
Improved Equity Position • Broadened shareholder base and increased shareholder liquidity • Float increases from 44 million shares to 85 million shares (Millions) Canfor Canfor Status Quo Pro Forma Current Shares Outstanding 81 81 New Shares Issued 0 51 Total Shares Outstanding 81 132 Major Sharehol
Slide 23: Consolidation in BC is Necessary
Consolidation in BC is Necessary Western Forestry Companies 1990s Today Ainsworth Lignum Slocan Ainsworth Riverside Canfor MacMillan TimberWest Canfor Slocan Bloedel 20 Crestbrook Tolko Become Doman TimberWest Northwood 14 Interfor Tolko Doman Weldwood Pacifica Papers Lignum Weldwood (IP) Fletcher W
Slide 24: Summary
Summary • Critical mass in wood products with product diversification • Complementary assets • Opportunity to leverage best practices • Strong platform for future growth • Significant shareholder value 24
Slide 25: Premier BC-Based Forest Products Company
Premier BC-Based Forest Products Company • Primary lumber capacity of 5.2 billion board feet Wood Products • 22 lumber mills located throughout BC, AB and QC • High margins realized through pro-dealers and home centres • Panels capacity of 950 million sq ft Panels • Currently 2 plywood mills and 1 O
Slide 26: Slide 26