BUSINESS

Stella-Jones shares soar with US$230M deal for U.S. treated wood supplier

11/02/2012 08:11 EDT | Updated 01/02/2013 05:12 EST
MONTREAL - Stella-Jones' shares surged Friday after the Canadian company announced plans to further expand its reach and product offering by agreeing to purchase one of North America's oldest suppliers of utility poles for US$230 million.

The Montreal-based company said the proposed purchase of McFarland Cascade Holdings Inc., based in the state of Washington, is expected to close this month and has received U.S. antitrust approvals.

Besides utility poles, McFarland Cascade provides treated wood products for outdoor home projects such as decks.

"A strong commitment to product quality and customer service has been a hallmark of McFarland's business operations, which Stella-Jones is committed to continue and build on," stated president and CEO Brian McManus.

The announcement of the deal on Friday briefly pushed Stella-Jones shares to a new all-time high. They gained more than six per cent or $3.73 at C$65.73 in early afternoon trading.

The purchase price includes about US$113 million of net working capital and the assumption of certain liabilities. The transaction will be financed through borrowing and equity.

Founded in 1916, McFarland operate wood treating facilities in Galloway, B.C., Tacoma, Wash., Eugene, Ore., and Electric Mills, Miss.

It is expected to earn US$29 million in pre-tax operating profits (EBITDA) on US$280 million of revenues in 2012, up from US$255 million of revenues for the fiscal year ended Dec. 31, 2011.

Pierre Lacroix of Desjardins Capital Markets said the acquisition is positive.

"We were aware that SJ has had a major acquisition in its sights for a number of years. We see significant synergies and cross-selling potential that could drive earnings beyond our initial forecasts," he wrote in a report.

Lacroix expects the deal should boost Stella-Jones' EPS by 10 to 15 per cent on a 35 per cent increase to revenues and 25 per cent improvement in EBITDA.

He said Stella-Jones (TSX:SJ) could fund C$140 million to C$150 million of the purchase from debt, and C$80 million to C$85 million from external equity.

In July, Stella-Jones (TSX:SJ) abandoned its plans to acquire Brisco Wood Preservers Ltd., a treated wood pole company based in British Columbia. The company has increased its market share from last year's acquisition of railway tie manufacturer Thompson Industries for US$41 million and the 2010 purchase of Tangent Rail Corp. for US$165 million.

Stella-Jones is a producer and marketer of pressure-treated wood products. It supplies North America's railroad operators with railway ties, timbers and recycling services, and the continent's electrical utilities and telecommunications companies with utility poles.

It also provides industrial products and services for construction and marine applications, as well as residential lumber to retailers and wholesalers for outdoor applications.