Shares in Canfor Corporation (TSX:CFP) dropped 20% this morning on the news that an offer by Vancouver billionaire Jim Pattison to buy out minority shareholders and take the company private has been cancelled.
Shareholders were to vote on Wednesday, December 17, on an offer by Pattison’s investment company, Great Pacific Capital Corp., of close to $1 billion to buy out minority shareholders. Great Pacific owns 51% of Canfor stock.
But last night, Canfor issued a press release announcing that the meeting was being called off. According to a company news release, proxy votes ahead of Wednesday’s meeting indicate that only 45% of shareholders would approve the deal.
Analysts read Pattison’s offer as a vote of confidence for the company, since it was clear Pattison thought Canfor was undervalued.
Great Pacific’s offer of $16 per share was an 82% premium on the stock at the time the offer was first pitched in August. Canfor’s shares shot up from $8.80 per share on August 9 to $15.26 August 12. It stayed well above $15 per share until today.
If Pattison’s offer was intended to boost the company’s share price, it worked. Even with this morning’s selloff, Canfor’s share price is still well above what it was when Pattison first made his offer, and little has changed in the B.C. forestry sector to suggest any reason for improved confidence in the sector overall. The industry in B.C. continues to face serious headwinds, which have resulted in permanent sawmill closures and temporary curtailments.
Canfor stock dropped over 20% this morning when markets opened, from $15.56 to $12.35 per share, but has already bounced back to just above $13 per share. That’s still about $4 per share better than when Pattison first made his offer.
Paul Quinn, analyst for RBC, admitted in a briefing note that analysts like him were shocked by Monday's decision.
“Based on our analysis published last week, we expect that Canfor will trade at ~$13 per share,” he writes in a briefing note. “However, we expect that the initial market reaction could push the share price below our trading expectation as the announcement has likely caught most investors (and us!) off guard.”
Longer term, however, Pattison’s offer may have the effect of improving the company’s share price. If investors think a company is undervalued, the long-term strategy is to buy and hold.
“Looking longer term, we view the larger-than-expected investor base that expressed dissent regarding the transaction as a positive, as it suggests that there is still a large contingent of investors that see value in the sector,” Quinn wrote.
