Resolute Forest Products

Resolute Forest Products of Montreal, Canada, is buying three Southern sawmills from Conifex, including mills in El Dorado and Glenwood.

Resolute Forest Products Inc. of Montreal has made an agreement with Conifex Timber to acquire Conifex’s El Dorado and Glenwood sawmills, along with a mill in Cross City, FL.

The deal will lead toward additional investment in the shuttered El Dorado mill with a planned reopening in 2021.

The deal is valued at $163 million plus working capital delivered at closing, which is currently estimated at $7 million. The three sawmills have combined production capacity of 550 million board feet.

Conifex Timber’s El Dorado mill is located on U.S. 167 south of El Dorado. It should not be confused with Canfor Southern Pine, which operates a sawmill off Industrial Road in east El Dorado. Both Conifex and Canfor are headquartered in Vancouver, British Columbia, Canada. Canfor stockholders recently defeated an attempt by its board to sell the publicly-traded company to private Great Pacific Capital Corporation.

Conifex bought the El Dorado mill from Georgia-Pacific in August 2015, acquiring exclusive rights to the sawmill and related facilities and equipment, including approximately 186 acres of land. The total consideration was $21 million, comprised of $12.36 million in cash and an $8.64 million vendor mortgage.

The company spent $55 million upgrading the El Dorado mill, which reopened in 2017 with 90 workers. In August 2019, Conifex said it was shutting down the mill due to low prices for its products.

Conifex bought the Glenwood and Cross City mills in July 2018 for $150 million plus $19.8 million in working capital.

Yves Laflamme, president and chief executive officer of Resolute Forest Products, likes his company’s prospects with the ownership of the El Dorado, Glenwood and Cross City mills.

"This transaction will provide immediate scale in the attractive U.S. South, with quality assets in a rich fiber basket, close to growing end-markets. Scaling our lumber business forms a key part of our stated transformation strategy. This transaction will also diversify our lumber production. When operating to capacity, almost 25 percent of our production will be in the U.S. South,” Laflamme said in a statement.

The sawmills produce construction-grade dimensional lumber and decking products from locally-sourced southern yellow pine for distribution within the U.S.

Production capacity for Cross City is 185 million board feet and it is currently operating on a two-shift basis. Glenwood's capacity is also 185 million board feet and it is operating on a 1.5 shift basis.

The El Dorado mill, with capacity of 180 million board feet, is idle. Resolute intends to build on Conifex's significant capital investments in recent years, including $55 million previously invested in El Dorado, $23 million in Glenwood and $12 million in Cross City.

Resolute said in its statement that it is well-positioned to generate synergies and related benefits with the acquisition for the following reasons:

-- Complementing the mills' workers and staff with Resolute's deep sawmilling expertise to improve asset reliability, productivity and safety performance.

-- Completing the necessary capital upgrades of approximately $20 million to gradually restart the El Dorado mill in 2021.

-- Using the company's strong financial position to support the contemplated improvement initiatives and capital projects, to improve fiber procurement and to ensure the appropriate level of working capital.

-- Integrating corporate functions along with nearby pulp, paper and tissue assets in Florida, Tennessee, Alabama and Mississippi to generate synergies in fiber procurement, environmental management, human resources management and procurement. Among Resolute’s properties is a paper mill in Grenada, MS.

-- Leveraging Resolute's existing surplus tax attributes.

Resolute expects that most employees currently associated with the three assets, including management, will remain with the organization and that they will be offered terms of employment on substantially similar terms, effective upon closing of the transaction.

Resolute intends to finance the acquisition with its existing credit facilities. The transaction, which is subject to regulatory approvals and customary conditions, is expected to close in the first quarter of 2020. The transaction is subject to termination if closing conditions are not met or waived by May 29, 2020.

TD Securities Inc. acted as financial advisor to Resolute on the transaction. Akerman LLP acted as Resolute's U.S. transaction counsel, Rose Law Firm as local Arkansas counsel and Stikeman Elliott LLP as Canadian transaction counsel.

Resolute Forest Products has a diverse range of products, including market pulp, tissue, wood products, newsprint and specialty papers, which are marketed in close to 70 countries. The company owns or operates some 40 facilities, as well as power generation assets, in the United States and Canada.

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