Pension Funds Scooped Up TimberWest for Less than Half Earlier Offer

When a pair of pension funds bought TimberWest in 2011, the company’s board of directors recommended its investors approve the sale but failed to tell them the same buyers had offered to pay more than twice as much a few years earlier.

“It’s interesting that I’m not aware that was ever made public back then,” said Kevin Mason, an analyst who followed TimberWest for Equity Research Associates.

A sizeable offer from a reputable buyer probably should have been disclosed, he said, though he noted those were rough years for the forest industry and it wasn’t surprising the value of TimberWest declined significantly between the two offers.

The British Columbia Investment Management Corporation (bcIMC) and the Public Sector Pension Investment Board bought TimberWest, which had previously traded on public stock markets, through a jointly owned numbered company at a price of $6.48 per unit in 2011.

Those same pension funds had, however, offered $15.25 per unit for the com-pany in July 2008, an offer facilitated by then-B.C. forests minister Rich Coleman. TimberWest’s board rejected the offer.

Later that year, the company’s board agreed to a $100-million loan from bcIMC that could be converted into an ownership stake.

Details of the offer became public in documents filed recently in B.C. Supreme Court as part of a civil suit between plaintiffs Ted and Rebecca LeRoy and de-fendants TimberWest Forest Corp., two associated companies and three senior TimberWest officials, including former CEO Paul McElligott.

The lawsuit alleges the defendants deliberately drove Ted LeRoy Trucking Ltd., a major contractor for the company, into bankruptcy as part of a plan to reduce costs and raise the value of TimberWest. None of the allegations has been tested or proven in court.

A spokesperson for TimberWest did not respond to The Tyee’s calls.

The company’s management information circular describing the background to the sale agreement, provided to investors before they voted in 2011 on whether or not to accept the offer, said bcIMC had invested $107 million in TimberWest by May 2011 and controlled about 25.3 per cent of the company.

It dated the deal to buy the company to an April 23, 2010 meeting between bcIMC CEO Douglas Pearce and TimberWest president and CEO Paul McElligott on unrelated matters. At that meeting, it said, “Mr. Pearce noted that bcIMC might consider exploring the possibility of putting forward a proposal to take the Company private.”

The document included fairness opinions from BMO Nesbitt Burns and UBS Securities, both of which found the price being offered was fair, though neither noted the higher earlier offer.

Nor did they mention that TimberWest’s board of directors had been considering selling the company since 2005, a process referred to in internal company documents as “Project Montreal” which led to the 2008 offer.

Paul Quinn, an analyst with RBC Capital Markets, said there was a material change in the value of the company between the 2008 offer and the 2011 sale.

TimberWest was struggling with debt and in September 2008 had reached a verbal agreement for financing with an institution in New York, but the timing coincided with the bankruptcy filing of Lehman Brothers and the financial meltdown, Quinn said.

“[The institution] pulled their offer, and then TimberWest was hooped,” he said. “They just couldn’t renew that debt and that materially changed the value of the stock.”

An Oct. 18, 2008, email from TimberWest executive vice president and CFO Bev Park to CEO McElligott detailed the company’s financial trouble, saying it had used all but $45 million of the $325 million in credit available to it and would “hit the wall” in about nine months.

“It’s a bit of a circular problem,” said the email, which was filed in court as part of the LeRoy case. “Without a lending solution, we will spook the market, drive the stock down and risk going into play at a time when many of our unitholders might vote in favour of it just to get cash from wherever they can — in a rational market, you would expect unitholders to reject a bid at this level, but nothing is rational at the moment.”

RBC’s Quinn said the offer TimberWest accepted in 2011 was the best it could have gotten at the time and there was no need to tell unitholders about the earlier offer. “How many offers do you disclose? Companies get offers all the time. How far back do you go?”

Typically offers are made to companies and considered in private, Quinn said. “It’s a judgment call how far back you go and is that the same company they’re bidding on now, and I would say no.”